Apply your critical-thinking ability to the knowledge youve gained. These cases will provide you an opportunity to

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Apply your critical-thinking ability to the knowledge you’ve gained. These cases will provide you an opportunity to develop your research, analysis, judgment, and communication skills. You also will work with other students, integrate what you’ve learned, apply it in real world situations, and consider its global and ethical ramifications. This practice will broaden your knowledge and further develop your decision-making abilities.

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 2015 10-K (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 among its available-for-sale investments.

Required:

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 classifications?

2. How are unrealized gains or losses reported? 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 the cash flow effects of these investments reflected in the company’s comparative statements of cash flows? If so, what information is provided by this disclosure?