This situation generally arises when the ownership level rises above 20%, but stays below the 50% level.
In these cases, the investor is deemed to have the ability to significantly influence the investee company.
Recall that "trading securities" are investments made with the intent of reselling them in the near future.
Such investments are considered highly liquid and are classified on the balance sheet as current assets.
They are carried at fair market value, and the changes in value are measured and included in the operating income of each period.
However, other investments are acquired with the intent of holding them for an extended period.
The accounting depends on the intent of the investment.
As this chapter will show, one company may acquire control of another, usually by buying more than 50% of the stock.In this case, the acquirer (sometimes known as the parent) must consolidate the accounts of the acquired subsidiary.Sometimes, one company may acquire a substantial amount of the stock of another without obtaining control.Thus, the issuer of a bond payable receives money today from an investor in exchange for a promise to repay the money, plus interest, over the future.In a later chapter, bonds payable will be examined from the issuer's perspective.In this chapter, the preliminary examination of bonds will be from the investor's perspective.