Explore BrainMass

Explore BrainMass

    Investments in Securities

    Companies that have excess cash will often put some cash away in short-term investments. This is because while deciding what to do with excess cash, company's will temporarily invest this money in order to earn some profit (interest) instead of letting it sit idle in an interest-free chequing account. 

    Cash equivalents:
    Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity date that they present an insignificant risk of changes in value because of changes in interest rates.1 Cash equivalents are typically presented along with cash, not short-term investments, on the balance sheet. 

    Investments in debt and equity securities:
    Investments in debt and equity securities are grouped into three categories at acquisition for measurement (valuation) and presentation. The classification must be documented.2 

    Held-to-maturity: These are debt securities that the company intends to hold to maturity and has the ability to do so. These secutiries are measured at their amortized cost . Depending on the length of the maturity date, these securities can either be classified as current or non-current assets. 

    Held-for-trading: Held-for-trading securities are current assets that are measured at fair value where readily determinable fair values exist. Holding gains and losses for held-for-trading securities are included in earnings.3 These are financial instruments that have any of the following characteristics and are not loans or receivables.
    1. They are acquired for the purpose of selling them in the near term. 
    2. They are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. 
    3. They are derivatives. 

    Available-for-sale: Debt and equity securities that are not classified as held-to-maturity or held-for-trading. Available-for-sale securities are measured at fair value. Holding gains and losses from these securities are included in other comprehesive income until realized unless. However, if the securities are part of a fair value hedge then holding gains or losses are recognized in the same period as the hedge.3 

    Balance sheet classification:
    These securities may be classified as either current or non-current assets depending on managements intent and the nature of the investments:

    An entity that presents a classified statement of financial position shall report individual held-to-maturity securities, individual available for sale
     securities, and individual trading securities as either corrent or noncurrent.4

    The U.S. GAAP for determining whether an item should be classified as either current or non-current is found under balance sheet resentation matters.5 


    1. FAS ASC Glossary
    2. FASB ASC 320-10-25-1
    FAS ASC 320-10-35-1
    4. FAS ASC 310-10-45-2
    5. FAS ASC 210-10-45


    © BrainMass Inc. brainmass.com July 22, 2024, 2:10 am ad1c9bdddf

    BrainMass Solutions Available for Instant Download

    Equity method of accounting for Investments

    On January 1, 2009, Monroe, Inc., purchased 10000 shares of Brown Company for $250000, giving Monroe 10 percent ownership of Brown. On January 1, 2010, Monroe purchased an additional 20000 shares (20 percent) for $590000. This latest purchase gave Monroe the ability to apply significant influence over Brown. The original 10 perc

    Available for sale securities & Unrealized gain/loss on equity investments

    On January 2, 2017, Alpha Company purchased 10,000 shares of the stock of Zulu Company, and did not obtain significant influence. The investment is intended as a long-term investment. The stock was purchased for $10 per share, and represents a 12% ownership stake. Zulu Company made $25,000 of net income in 2017, and paid dividen

    Tax Scenario with Cousin Vinnie

    Scenario: Cousin Vinnie is a shareholder and an employee in the family business. The directors have no intention of declaring a dividend and putting cash into the pockets of such a questionable person and causing the other shareholders to have a taxable event. Instead, because of pressure from cousin Vinnie's mother to give her

    6-1 Discussion: Outdoors R Us Ethics

    Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The campgrounds offer a wider array of on-site facilities than most. New members sign a multi-year contract, pay a down payment, and make mont

    Why Do Companies Invest in Securities?

    Why do companies invest in securities? What is the cost of an investment in a stock? What is the cost of an investment in a bond? How do the International Financial Reporting Standards affect the reporting of securities in the US?

    Myco basic diluted EPS convertible bonds preferred options

    At January1,2013 Myco Corporation had outstanding the following securities: $1,000,000, 5% cumulative convertible preferred shares,$50 par; each share is convertible into 2 shares of common stock. 7% convertible bonds, $2,000,000 face value issued at par ($1,000) per bond. Each bond is convertible into 30 shares of common sto

    Investment analysis - Portfolio

    As I am beginning to review investments in one's own portfolio, when you realize that a carbon footprint is connected to the investment is relatively large, but the oil company stock also pays for the family vacations each year. The company's website also states that it uses a high percentage of the profits to invest in green an

    Examples of Portfolio Planning

    Justify the assembly of a balanced product portfolio by marketing managers as a means of ensuring extended success in the health care market industry. Provide two (2) real-life examples to support your rationale. Assess the importance of portfolio planning in the health care industry, and determine at least one (1) approach t

    Long Term Investing

    The heart of discounted cash flows analysis is the assumptions behind the numbers. Once the mechanics of the tool are mastered, then one needs to focus on the assumptions behind the numbers. How might a manager manipulate the assumptions behind a discounted cash flows analysis of a project to ensure a favorable result (e.g. pos

    Present Value of Bond Investments

    1.) A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5% paid annually. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond's PV? 2.) A 10-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 5.5% (2.75% of face value every six months). Th

    Percentage Gain or Loss on Investments

    A sophisticated investor, B. Graham, sold 500 shares of Amwell, Inc. at $42 a share. The price of the stock subsequently fell to $38 before rising to $49, at which time Graham covered the position (that is, closed the short position). What was the percentage gain or loss on this investment?

    Categorizing Investments

    a) Can equity investments be categorized as "trading", meaning the company expects to hold the investments for the short term only? b) Can both stocks and bonds be categorized as held to maturity? c) Can a company change the category their investments are in? If so, how is the accounting for these investments handled as a

    Stable Savings and Investments

    I need some help with this question: At the age of 18, a young girl started saving $50 at the start of every week. Over the years, her savings has been invested in medium sized corporations that have paid 11.5% annual returns. Celebrating a 48th birthday this week, how much money does she have invested in this account?

    good companies and good investments

    A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a good company as one that has experienced rapid growth in the recent past. Explain the reasons why shares of good companies may or may not turn out to be good investments.

    Rate of return for mortgage vs investments; debt vs savings

    1. Aside from tax deductibility aspect, if you can put your additional mortgage payments into bonds or other investments which might earn a greater rate of return, would you make that investment? 2. What could be some missteps people may take in terms of debt and savings?

    Choices and Investments

    Boise Company has the choice between two investments. Investment 1 will generate a $27,000 deductible loss this year (year 0), $15,000 taxable income in year 1, and $60,000 taxable income in year 2. Investment 2 will generate $16,000 taxable income in years 0, 1, and 2. Assume that income and loss reflect before-tax cash flo

    Investment Options in Stock Purchasing

    Robert Pang, and his wife Jean have 50K to invest. They will need the money at retirement in 10 years. They are considering 2 investments. The first a utility company common stock that costs $50 per share and pays dividends of $2 per share per year (a 4% dividend yield). They did not expect the value of this stock to increase. T

    Investments, Earnings and Bonds

    Could use some help on these problems to make sure I did them right: Chap 1 2. Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. For each of the following transactions, identify the real and/or fi

    Planning for Capital Investments

    Compute the Return on Investment (ROI) measure for both divisions and the company as a whole. Based on ROI alone which division had the better performance? Round ROI measures to the nearest whole percent. Evaluate this company.

    Present value of investments at different interest rates

    A particular business deal allows you the choice of receiving $1,000 today or receiving $2,000 ten years from today. How would your choice change based on your ability to invest money at a very low rate of interest or a very high rate of interest?

    Reward Paradox and Investments

    I view the risk reward paradox as the following: The more risk you take, the higher your returns will be and vice versa. The less risk you take, the lower your returns will be. What's considered risk free investments?

    Investments in Commercial Banks

    Commercial banks moved heavily into equipment leasing during the early 1970's, acting as lessors. One major reason for this invasion of the leasing industry was to gain the benefits of accelerated depreciation and the investment tax credit on leased equipment. During this same period, commercial banks were investing heavily in m

    Investments in other companies

    Why do companies make investments in other companies? What are the differences between debt and equity investments? What would influence a company to choose equity or debt as an investment?

    Review questions

    1. Joe's Clambake Company is considering the purchase of a C130 airplane to help spot monster clams on the bottom of Chesapeake Bay. In estimating the worth of adding the plane to the company the following cash flow analysis has been developed: Cash inflow at the end of year 1: $12,000 Cash inflow at the end of year 1: $12,0


    On January 1, 2005, Gardner Associates purchased 30 percent of the outstanding shares of stock of Gillen Corp. for $150,000 cash. The investment will be accounted for by the equity method. On that date, Gillen's net assets (book and fair value) were $300,000. Gardner has determined that the excess of the cost of its investment i