WRD_IMCh15_10_2010

WRD_IMCh15_10_2010 - chapter Investments and Fair Value...

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chapter 15 Investments and Fair Value Accounting ______________________________________________ OPENING COMMENTS Chapter 15 discusses the various ways businesses can invest excess cash with the goal of earning additional cash. These investments can include interest earned on deposits such as CDs, investment in notes and bonds, or investment in stocks. These investments can be short term or long term depending on the need of each individual business. The motivations can range from a higher return on their money than they can earn by leaving the cash in the bank to take over the control of another company. This chapter introduces you to these various options and discusses the accounting methods for each investment. As always, remember to download the TM for this chapter posted on Module. After studying the chapter, you should be able to: 1. Understand why companies invest in debt and equity securities. 2. Understand and illustrate the accounting for debt investments. 3. Understand and illustrate the accounting for equity investments. 4. Understand and illustrate valuing and reporting investments in the financial statements. 5. Understand fair value accounting and its implications for the future. OBJECTIVE 1 Understand why companies invest in debt and equity securities. KEY TERMS Debt Securities Investments Equity Securities This objective provides an overview of how businesses can invest cash, including current operations, short-term investments, and long-term investments.
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Chapter 15 Investments and Fair Value Accounting OBJECTIVE 2 Understand and illustrate the accounting for debt investments. Debt securities include notes and bonds available as investments. By now, you should be familiar with the terms premium and discount from Chapter 14 in relation to bonds. This objective focuses on the journal entries to record the purchase, interest earned/accrued, and sale of bonds held for short-term investments. DEMONSTRATION PROBLEM — Accounting for Debt Investments On May 31, 20XX, Bellbugg Enterprises invested $60,000 in Johnsonville municipal bonds that pay 8% interest semiannually on June 30 and December 31 each year. Journalize the entries to record the purchase of the bonds. Be sure to include the interest accrued. Record the journal entry for the interest revenue on December 31. On March 1 of the following year, the bonds are sold for 97.5. Record the journal entry for the sale. TM 14-2 provides the solution for this problem. INTERNET ACTIVITY — Investing in Bonds After learning all the intricacies of accounting for bonds, you may enjoy learning about opportunities to invest in bonds. You may want to visit the following Web sites: http://moneycentral.msn.com/content/Investing/Buyingbonds/Buyingbonds.asp http://www.investinginbonds.com/ http://www.fool.com/FoolFAQ/FoolFAQ0010.htm OBJECTIVE 3 Understand and illustrate the accounting for equity investments. KEY TERMS
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This note was uploaded on 04/13/2010 for the course ACTG 1B a taught by Professor 2 during the Spring '10 term at Foothill College.

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WRD_IMCh15_10_2010 - chapter Investments and Fair Value...

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