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REPORTINGANDANALYZINGINVESTMENTSCorporationsgenerallyinvestindebtorstocksecuritiesforoneofthreereasons.Pensionfundsandbanksregularlyinvestindebtandstocksecuritiesto:
houseexcesscashuntilneeded.
generateearnings.
meetstrategicgoals.
avoidatakeoverbydisgruntledinvestors.AccountingforDebtInstrumentsAccountingforDebtInstrumentsIllustration:KuhlCorporationacquires50DoanInc.12%,10-year,$1,000bondsonJanuary1,2012,for$54,000,includingbrokeragefeesof$1,000.Theentrytorecordtheinvestmentis:Illustration:KuhlCorporationacquires50DoanInc.12%,10-year,$1,000bondsonJanuary1,2012,for$54,000,includingbrokeragefeesof$1,000.ThebondspayinterestsemiannuallyonJuly1andJanuary1.TheentryforthereceiptofinterestonJuly1is:Illustration:IfKuhlCorporation’sfiscalyearendsonDecember31,preparetheentrytoaccrueinterestsinceJuly1.Illustration:AssumethatKuhlcorporationreceivesnetproceedsof$58,000onthesaleoftheDoanInc.bondsonJanuary1,2013,afterreceivingtheinterestdue.Preparetheentrytorecordthesaleofthebonds.Aneventrelatedtoaninvestmentindebtsecuritiesthatdoesnotrequireajournalentryis:
acquisitionofthedebtinvestment.
receiptofinterestrevenuefromthedebtinvestment.
achangeinthenameofthefirmissuingthedebtsecurities.
saleofthedebtinvestment.Whenbondsaresold,thegainorlossonsaleisthedifferencebetweenthe:
salespriceandthecostofthebonds.
netproceedsandthecostofthebonds.
salespriceandthemarketvalueofthebonds.
netproceedsandthemarketvalueofthebonds.0------------------20%--------------50%--------------------100%Companiesusethecostmethod.Underthecostmethod,companiesrecordtheinvestmentatcost,andrecognizerevenueonlywhencashdividendsarereceived.
Costincludesallexpendituresnecessarytoacquiretheseinvestments,suchasthepricepaidplusanybrokeragefees(commissions). July1 Dec.31 Feb.10HoldingsBetween20%and50%Undertheequitymethod,theinvestorrecordsdividendsreceivedbycrediting:
DividendRevenue.
InvestmentIncome.
RevenuefromInvestment.
StockInvestments.Illustration:MilarCorporationacquires30%ofthecommonsharesofBeckCompanyfor$120,000
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2024-09-02
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