Can equity investments be categorized as "trading", meaning
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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 result?
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Solution Summary
The solution determines if equity investments be categorized as "trading", meaning the company expects to hold the investments for the short term only. It also discusses if both stocks and bonds can be categorized as held to maturity and if a company can change the category their investments are in.
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a) Absolutely, they can be held as a trading security. Trading securities are carried on the balance sheet under current assets until the time that they are sold. Many companies buy securities as trading securities. When conditions are optimal to sell, they do so and can make a substantial profit when market prices exceed the cost of the trading security. Companies that have an excess of cash (Apple, Microsoft, Kraft, etc.) often buy trading securities as a way to generate additional ...
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