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Discussion week 6 -...

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Companies often purchase stocks from another company for different reasons. These reasons usually follow a strategy for example an intention to expand or penetrate another market, form an alliance with the other company or a short term investment of excess cash (Easton, Halsey, McAnally, Hartgraves, & Morse, 2010) . When assets are acquired they are reported at fair value on the investing company’s balance sheet. How they are managed and the accounting treatment they receive as time passes and the fair value changes depends on the assets classification as either trading securities, held for maturity or available for sale securities ( http://www.investopedia.com/articles/fundamental-analysis/11/accounting-intercorporate- investment.asp#axzz1m8ArMpy6 ). Trading securities are held with the intent to be sold for profit within a short period of time, usually three months ( http://www.investopedia.com/articles/fundamental-
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Unformatted text preview: analysis/11/accounting-intercorporate-investment.asp#axzz1m8ArMpy6 ). Available for sale securities are held for capital gains and dividend revenue. They are held for a longer period than trading securities but can be sold for a right price. Changes in fair value are reported on the income statement (Easton et al, 2010). Held for maturity are held for a long term until they reach the maturity date. Changes in fair value do not affect the balance sheet or income statement as by the time they are sold the market value should be equal to the face value (Easton et al, 2010). References: Easton, P.; Halsey, R. F.; McAnally, M. L.; Hartgraves,A. & Morse, W., (2010), Financial & managerial accounting for MBAs. Canada: Cambridge Business Publishers http://www.investopedia.com/articles/fundamental-analysis/11/accounting-intercorporate-investment.asp#axzz1m8ArMpy6...
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