Corporations frequently invest in securities issued by other corporations
case 1 .
Corporations frequently invest in securities issued by other corporations. Some investments are acquired to secure a favorable business relationship with another company. On the other hand, others are intended only to earn an investment return from the dividends or interest the securities pay or from increase in the market prices of the securities – the same motivations that might cause you to invest in stocks, bonds, or other securities. This diversity in investment objectives means no single accounting method is adequate to report every investment.
Merck & Co., Inc. invests in securities of other companies. Access Merck’s 2015 10K (which includes financial statements) using EDGAR at www.sec.gov. Note: Merck’s 2015 financial statements were issued prior to the effective date of ASU 2016-01, so do not be surprised by the fact that Merck includes equity investments amount it’s available for sale investments.
1) What is the amount and classification of any investment securities reported on the balance sheet? In which current and noncurrent asset categories are investments reported by Merck? What criteria are used to determine the classification?
2) How are unrealized gains or losses reports? Realized gains and losses?
3) Are any investments reported by the equity method?
4) What amounts from equity method investments are reported in the comparative income statements?
5) Are cash flow effects of these investment reflected in the company’s comparative statements of cash flows? If so, what information is provided by this disclosure?
Access the 2015 financial statements and related disclosure notes of Ford Motor Company from its website at corporate.ford.com.
1) In Note 21, find Ford’s net deferred tax asset or liability. What is the number?
2) Does Ford show a valuation allowance against deferred tax assets? If so, what is the number, and what is Ford’s explanation for it?
3) Does Ford have any NOL carryforwards? What is the amount of any carryforward, what deferred tax asset or liability is associated with it, and what effect tax rate does that imply was used to calculate its deferred tax effect?
Case Study #6:
Refer to the 2015 financial statements and related disclosure notes of FedEx Corporation. The financial statements can be found at the company’s website (www.fedex.com).
1) What pension and other post retirement benefit plans does FedEx sponsor for its employee’s? Explain.
2) What amount does FedEx report in its balance sheet for its pension and other postretirement benefit plans? Explain.
3) FedEx reports three actuarial assumptions used in its pension calculations. Did reported changes in those assumptions from the previous year increase or decrease the projected benefit obligation? What?