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 increases 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 2016 10-K (which includes using EDGAR at www.sec.gov. Note: Merck’s 2016 were issued prior to the effective date of ASU 2016-01, so do not be surprised by the fact that Merck includes equity investments among its available-for-sale investments.
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1. What is the amount and classification of any AFS investment securities reported in the In which current and noncurrent asset categories are investments reported by Merck? Is there an amount you can’t find in the but that you know must be there?
2. How are unrealized gains or losses on AFS investments reported, in net income or OCI? What about realized gains or losses on AFS investments?
3. Are any investments reported by the equity method?
4. What amounts from equity method investments are reported in the 2016 income statement?
5. Are cash flow effects of investments reflected in the company’s statement of cash flows? If so, what information is provided by this disclosure?