Chapter 12 - Investments. This chapter’s objectives are to: Explain how to account for debt investments, explain how to account for stock investments, discuss how debt and stock investments are reported in financial statements. | Investments 12 Learning Objectives Explain how to account for debt investments. Explain how to account for stock investments. Discuss how debt and stock investments are reported in financial statements. 3 2 1 Corporations purchase investments in debt or stock securities generally for one of three reasons. Corporation may have excess cash. Generate earnings from investment income. For strategic reasons. Illustration 12-1 Temporary investments and the operating cycle LO 1 LEARNING OBJECTIVE Explain how to account for debt investments. 1 Pension funds and banks regularly invest in debt and stock securities to: house excess cash until needed. generate earnings. meet strategic goals. avoid a takeover by disgruntled investors. Question Why Corporations Invest LO 1 RECORDING ACQUISITION OF BONDS Cost includes all expenditures necessary to acquire these investments, such as the price paid plus brokerage fees (commissions), if any. Accounting for Debt Investments LO 1 Investments in government and corporation bonds. Entries are made to record the acquisition, the interest revenue, and the sale. RECORDING BOND INTEREST Calculate and record interest revenue based upon the carrying value of the bond times the interest rate times the portion of the year the bond is outstanding. Accounting for Debt Investments LO 1 RECORDING SALE OF BONDS Accounting for Debt Investments Credit the investment account for the cost of the bonds. Record as a gain or loss any difference between the net proceeds from the sale (sales price less brokerage fees) and the cost of the bonds. LO 1 Illustration: Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January 1, 2017, for $50,000. The entry to record the investment is: Debt Investments 50,000 Cash 50,000 Jan. 1 Accounting for Debt Investments LO 1 Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January 1, 2017, for $50,000. The bonds pay interest annually on January 1. If Kuhl Corporation’s fiscal year ends on . | Investments 12 Learning Objectives Explain how to account for debt investments. Explain how to account for stock investments. Discuss how debt and stock investments are reported in financial statements. 3 2 1 Corporations purchase investments in debt or stock securities generally for one of three reasons. Corporation may have excess cash. Generate earnings from investment income. For strategic reasons. Illustration 12-1 Temporary investments and the operating cycle LO 1 LEARNING OBJECTIVE Explain how to account for debt investments. 1 Pension funds and banks regularly invest in debt and stock securities to: house excess cash until needed. generate earnings. meet strategic goals. avoid a takeover by disgruntled investors. Question Why Corporations Invest LO 1 RECORDING ACQUISITION OF BONDS Cost includes all expenditures necessary to acquire these investments, such as the price paid plus brokerage fees (commissions), if any. Accounting for Debt Investments LO 1 Investments in government
