BMGT 220 Chapter 12

BMGT 220 Chapter 12 - Financial Accounting, Seventh Edition...

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Slide 12-1 Investments Financial Accounting, Seventh Edition Chapter 12
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Slide 12-2 How much has Microsoft stock prices fluctuated? 0 2 4 6 8 10 12
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Slide 12-3 The Next Microsoft?? In seven years, Facebook has risen from a tiny start-up to an Internet power with a potential market value estimated at more than $50 billion. Now an online forum with more than 600 million users , Facebook faces growing pressure from lawmakers and regulators concerned about the way it uses personal information shared by its users. “Facebook Seeking Friends in Beltway” – Wall Street Journal, April 20, 2011
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Slide 12-4 C o rpo ratio ns  g e ne ra lly inve s t in de b t o r s to c k s e c uritie s  fo r o ne  o f thre e   re a s o ns . Why Corporations Invest 1. Corporation may  have excess cash . 2. To generate  earnings from investment income . 3. For  strategic reasons . Temporary  investments and the  operating cycle
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Slide 12-5 Accounting for Debt Instruments 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.
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Slide 12-6 Accounting for Debt Instruments Recording Acquisition of Bonds Cost includes all expenditures necessary to acquire these  investments, such as the price paid plus brokerage fees  (commissions), if any. On May 1, 2011, Panda Company purchased 25 Company A bonds,  with a par value of $1,000 each, at par, plus a total brokerage fee of  $300. The bonds pay interest (8% annual rate) on October 31 and  April 30.  Record all journal entries for Panda Company thru April  30, 2012. 
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Slide 12-7 Accounting for Debt Instruments
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Slide 12-8 Accounting for Debt Instruments Sale of Bonds On May 1, 2012, Panda Company sold 10 out of the 25 Company  A bonds (which were purchased for $25,300) at a market price of  102, less brokerage fees of $100.   Record the transaction.
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Slide 12-9 An event related to an investment in debt securities that does not require a journal entry is:   a. acquisition of the debt investment.   b. receipt of interest revenue from the debt investment.   c. a change in the name of the firm issuing the debt securities.   d. sale of the debt investment. Knowledge Check Question: Accounting for Debt Instruments
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12-10 Whe n bo nds  are  s o ld, the  g ain o r lo s s  o n s ale  is  the  diffe re nc e  be twe e n  the :   a. sales price and the cost of the bonds.   b. net proceeds and the cost of the bonds.   c. sales price and the market value of the bonds.   d. net proceeds and the market value of the bonds. Knowledge Check Question:
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BMGT 220 Chapter 12 - Financial Accounting, Seventh Edition...

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