Investments 17  Why invest?  Debt investments  Stock investments  Valuing & reporting investments.

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Presentation transcript:

Investments 17  Why invest?  Debt investments  Stock investments  Valuing & reporting investments

Why Corporations Invest excess cash $1,000 REGISTERED 8.0% to generate earnings strategic reasons

Accounting for Investments Investments in the bonds (debt) or stock of other companies: Assets Record at full cost (including brokerage fees). For debt investments record: Interest Receivable & Interest Revenue at year-end if necessary. Record gain or loss when investments are sold.

Valuing and Reporting Investments Unrealized Gains / Losses  when the value of investments increases or decreases  unrealized: the firm hasn’t sold the investments yet Value of stock investment increased by $1,300 during the year. Market Adjustment - ???1,300 Unrealized Gain - ???1,300

Trading Securities 48,200 Mkt Adj - Trading 1,300 Market Adjustment  an adjustment to the value of the investments account total value of the investment is $49,500  trading securities are those investments that are held for sale in the near term  separate accounts for “available- for-sale” securities that might not be sold in the near term

Unrealized Gain / Loss  unrealized gains on trading securities are reported as an increase in net income Unreal Gain - Income 1,300  unrealized gains on available- for-sale securities are reported as an increase in retained earnings Unreal Gain - Equity 1,300