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Analyzing Securities - Unit 4 IP

This type of investment includes a borrower and an

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bonds, municipal bonds and so on. This type of investment includes a borrower and an issuer. These are legal obligations which include a maturity date and interim interest payments as stated in the loan agreement. Many companies invest in debt securities to either fund their financing operations or sell them at an ideal value in the open market. In any type of investment there are
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4 categorical intents that an investor must recognize. (Balance Sheet: Classification, Valuation, 2013). For simplicity purposes, suppose the Fish Corporations purchased bonds. If they intended to hold it until maturity date, then it would fall under the category of “Held to Maturity Date” this classification excludes common stock. This type of security must have a set payments at specific times. The next category is “Available for Sale” intends that the company will sell the security when the market price is desirable or if the company is looking for ways to increase their cash flow. The third category is “Trading Securities” Management must contend that they will sell the investment. It has been purchased primarily for sale or it is part of the company’s case of investments collectively managed for short term profit. In this case, The Fish Corporation intends to sell the securities (bonds) immediately after their value has increased. This intent would fall under Trading Securities. (Investments in Debts and Equity Securities, n.d.) The accounting will reflect this chosen category. When the Fish Corporation purchased the bond it recorded a credit of $25,000.00 this is assumed there are no brokerage fees, (decrease) to cash and a debit (increase) to a current asset account; Trading Securities. This is not intended as a long term investment rather a short term so it is recorded as an asset account instead of an equity account. Suppose the books closed on March 31 st , the accountant has to record the Fair Market Value of the bond by recording a journal entry; Cost $25,000.00, FMV $24,000.00 a debit (decrease) of $1,000.00 to the income account; Unrealized Gains and Losses is recorded and a credit (decrease) to the contra asset account; Trading Securities Market Value Adjustment is recorded for the same amount. This is an offset account to Trading Securities it is used to convert
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