appendix E - Why Corporations Invest - may have excess cash...

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Why Corporations Invest - may have excess cash that I does not need for immediate purhase of operating assets - may have cash on hand that is idle until start of next operating cycle - may get interest ad dividends returns by investintg - number 2: generate earnings from investment income: ex: if bank finds demands for loans are low, it can invest in debt or equity securities - 3: strategic reasons: may buy nonctrolling interest in another company in a related industry to establish a prescene, influence custoer or supplies Accounting for debt investments - they are in gov and corporate bonds, mus record the acquisition, interest revenue, and sale - cost principle is used for acquisition to show all expenditures necessary to acquire these investment, like price paid, brokarage fees - ex: acquire 50, 12 percent, 10 year, 1000 dollar bonds for 54000 including brokarage fees o debit debt investments, credit cash o recording bond interest: if you pay interest of 3000, it is cash and interest revenue
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