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Appendices E - Reporting and analyzing investments. After studying this chapter, you should be able to: Identify the reasons corporations invest in stocks and debt securities, explain the accounting for debt investments, explain the accounting for stock investments, describe the purpose and usefulness of consolidated financial statements. | E REPORTING AND ANALYZING INVESTMENTS Accounting, Fifth Edition After studying this chapter, you should be able to: Identify the reasons corporations invest in stocks and debt securities. Explain the accounting for debt investments. Explain the accounting for stock investments. Describe the purpose and usefulness of consolidated financial statements. Indicate how debt and stock investments are valued and reported in financial statements. Distinguish between short-term and long-term investments. Learning Objectives Corporations generally invest in debt or stock securities for one of three reasons. Why Corporations Invest LO 1 Identify the reasons corporations invest in stocks and debt securities. Corporation may have excess cash. To generate earnings from investment income. For strategic reasons. Illustration E-1 Temporary investments and the operating cycle Pension funds and banks regularly invest in debt and stock securities to: house excess cash until needed. generate earnings. meet strategic goals. avoid a takeover by disgruntled investors. Question Why Corporations Invest LO 1 Identify the reasons corporations invest in stocks and debt securities. Accounting for Debt Instruments LO 2 Explain the accounting for debt investments. Recording Acquisition of Bonds Cost includes all expenditures necessary to acquire these investments, such as the price paid plus brokerage fees (commissions), if any. Recording Bond Interest Calculate and record interest revenue based upon the carrying value of the bond times the interest rate times the portion of the year the bond is outstanding. Accounting for Debt Instruments LO 2 Explain the accounting for debt investments. Recording Sale of Bonds Credit the investment account for the cost of the bonds and record as a gain or loss any difference between the net proceeds from the sale (sales price less brokerage fees) and the cost of the bonds. Illustration: Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January | E REPORTING AND ANALYZING INVESTMENTS Accounting, Fifth Edition After studying this chapter, you should be able to: Identify the reasons corporations invest in stocks and debt securities. Explain the accounting for debt investments. Explain the accounting for stock investments. Describe the purpose and usefulness of consolidated financial statements. Indicate how debt and stock investments are valued and reported in financial statements. Distinguish between short-term and long-term investments. Learning Objectives Corporations generally invest in debt or stock securities for one of three reasons. Why Corporations Invest LO 1 Identify the reasons corporations invest in stocks and debt securities. Corporation may have excess cash. To generate earnings from investment income. For strategic reasons. Illustration E-1 Temporary investments and the operating cycle Pension funds and banks regularly invest in debt and stock securities to: house excess cash until needed. generate earnings. meet
