Investments

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					Investments

A.   Debt Securities--debt securities are any instruments representing a
     creditor relationship with an enterprise, such as corporate bonds and U. S.
     government securities
     1. Held-to Maturity Securities--held-to-maturity securities are debt
         securities that the investor has the positive intent and ability to
         hold to maturity
         a. Accounting
             1) Balance Sheet
                 a) Valuation--debt securities should be reported at cost
             2) Income Statement
                 a) Interest Income--interest income, equal to the cash
                     interest payment on the debt securities, should be included
                     in the determination of income of the period in which it is
                     earned
                 b) Realized Gains and Losses--gains and losses from the sale
                     of debt securities, calculated by comparing the proceeds
                     from the sale of the debt securities with the cost of the
                     debt securities, should be included in the determination of
                     income of the period in which they occur
         b. Illustration--a corporation purchased 8%, 3-year bonds with a par
             value of $100,000 for $100,000 on January 1 of year 1; the bonds
             pay interest annually on December 31
                 Year 1:
                     Debt Investments                            100,000
                         Cash                                            100,000

                      Cash                                          8,000
                             Interest Income                                 8,000
                             (8% x 100,000)

                  Year 2:
                      Cash                                          8,000
                             Interest Income                                 8,000

                  Year 3:
                      Cash                                          8,000
                             Interest Income                                 8,000

                      Cash                                        100,000
                             Debt Investments                               100,000

     2.   Available-For-Sale Securities--available-for-sale securities are debt
          securities that are not bought and held primarily for sale in the near
          future to generate income on short-term price differences



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a.   Accounting
     1) Balance Sheet
         a) Valuation--debt securities should be reported at cost
             adjusted to fair market value, through the use of a market
             adjustment account, determined at the balance sheet date
         b) Unrealized Gain or Loss--the cumulative unrealized gain or
             loss from the adjustment of debt securities to fair market
             value should be included as a separate item in the
             stockholders' equity section of the balance sheet
     2) Income Statement
         a) Interest Income--interest income, equal the cash interest
             payment on the debt securities, should be included in the
             determination of income of the period in which it is
             earned
         b) Realized Gains and Losses--gains and losses from the sale
             of debt securities, calculated by comparing the proceeds
             from the sale of the debt securities with the cost of the
             debt securities, should be included in the determination of
             income of the period in which they occur
b.   Illustration--during year 1 a corporation purchased bonds in
     Company A for $15,000, Company B for $25,000, and Company C for
     $30,000; on December 31 of year 1 the market value of Company A's
     bonds was $17,000, the market value of Company B's bonds was
     $20,000, and the market value of Company C's bonds was $31,000;
     during year 2 the corporation purchased bonds in Company D for
     $10,000 and sold the bonds in Company B for $21,000; on December 31
     of year 2 the market value of Company A's bonds was $14,000, the
     market value of Company C's bonds was $32,000, and the market value
     of Company D's bonds was $11,500
         Year 1:
                              _Cost_    Market
             Company A        15,000    17,000
             Company B        25,000    20,000
             Company C        30,000    31,000
                              70,000    68,000

            Unrealized Gain or Loss--Equity                2,000
                Market Adjustment--Available-for-Sale              2,000
                (68,000 – 70,000)

        Year 2:
                             _Cost_    Market
            Company A        15,000    14,000
            Company C        30,000    32,000
            Company D        10,000    11,500
                             55,000    57,500



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                 Cash                                       21,000
                 Loss on Sale of Debt Investments            4,000
                      Debt Investments                                25,000

                 Market Adjustment--Available-for-Sale        4,500
                 (57,500 – 55,000 – (2,000))
                     Unrealized Gain or Loss--Equity                   4,500


3.   Trading Securities--trading securities are debt securities debt
     securities that are bought and held primarily for sale in the near
     future to generate income on short-term price differences
     a. Accounting
         1) Balance Sheet
             a) Valuation--debt securities should be reported at cost
                 adjusted to fair market value, through the use of a market
                 adjustment account, determined at the balance sheet date
         2) Income Statement
             a) Interest Income--interest income, equal to the cash
                 interest payment on the debt securities, should be
                 included in the determination of income of the period in
                 which it is earned
             b) Unrealized Gain or Loss--the unrealized gain or loss from
                 the adjustment of debt securities to fair market value
                 should be included in the determination of income of the
                 period in which it occurs
             c) Realized Gains and Losses--gains and losses from the sale
                 of debt securities, calculated by comparing the proceeds
                 from the sale of the debt securities with the cost of the
                 debt securities, should be included in the determination
                 of income of the period in which they occur
     b. Illustration--during year 1 a corporation purchased bonds in
         Company A for $15,000, Company B for $25,000, and Company C for
         $30,000; on December 31 of year 1 the market value of Company A's
         bonds was $17,000, the market value of Company B's bonds was
         $20,000, and the market value of Company C's bonds was $31,000;
         during year 2 the corporation purchased bonds in Company D for
         $10,000 and sold the bonds in Company B for $21,000; on December 31
         of year 2 the market value of Company A's bonds was $14,000, the
         market value of Company C's bonds was $32,000, and the market value
         of Company D's bonds was $11,500
             Year 1:
                                  _Cost_    Market
                 Company A        15,000    17,000
                 Company B        25,000    20,000
                 Company C        30,000    31,000
                                  70,000    68,000


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                     Unrealized Gain or Loss--Income               2,000
                         Market Adjustment--Trading                        2,000
                         (68,000 – 70,000)

                 Year 2:
                                      _Cost_    Market
                     Company A        15,000    14,000
                     Company C        30,000    32,000
                     Company D        10,000    11,500
                                      55,000    57,500

                     Cash                                         21,000
                     Loss on Sale of Debt Investments              4,000
                          Debt Investments                                 25,000

                     Market Adjustment--Trading                    4,500
                     (57,500 – 55,000 – (2,000))
                         Unrealized Gain or Loss--Income                   4,500

B.   Equity Securities--equity securities are any instruments representing
     ownership shares of corporations
     1. Nonsignificant Influence--nonsignificance influence exists when the
         investor owns less than 20% of the common stock of a corporation
         a. Nonmarketable Equity Securities--nonmarketable equity securities
             are equity securities for which sales prices are not currently
             available on a national securities exchange or in the over-the-
             counter market
             1) Accounting
                 a) Balance Sheet
                     I) Valuation--nonmarketable equity securities should be
                         reported at cost
                 b) Income Statement
                     I) Dividend Income--dividend income, equal to the cash
                         dividend payment, should be included in the
                         determination of income of the period in which it is
                         declared
                    II) Realized Gains and Losses--gains and losses from the
                         sale of nonmarketable equity securities, calculated by
                         comparing the proceeds from the sale of the
                         nonmarketable equity securities with the original cost
                         of the nonmarketable equity securities, should be
                         included in the determination of income in the period
                         in which they occur
             2) Illustration--during year 1 a corporation purchased 10% of the
                 common stock of Company A for $10,000 when the book value of
                 the net assets of Company A was $100,000; during year 1
                 Company A reported net income of $15,000 and paid dividends of


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        $12,000
            Stock Investments                             10,000
                Cash                                               10,000

            Cash                                           1,200
            (10% x 12,000)
                 Dividend Income                                   1,200

b.   Marketable Equity Securities--marketable equity securities are
     equity securities for which sales prices are currently available on
     a national securities exchange or in the over-the-counter market
     1) Available-For-Sale Securities--available-for-sale securities
         are marketable equity securities that are not bought and held
         primarily for sale in the near future to generate income on
         short-term price differences
         a) Accounting
             I) Balance Sheet
                 A) Valuation--equity securities should be reported at
                     cost adjusted to fair market value, through the use
                     of a market adjustment account, determined at the
                     balance sheet date
                 B) Unrealized Gain or Loss--the cumulative unrealized
                     gain or loss from the adjustment of equity
                     securities to fair market value should be included
                     as a separate item in the stockholders' equity
                     section of the balance sheet
            II) Income Statement
                 A) Dividend Income--dividend income, equal to the cash
                     dividend payment, should be included in the
                     determination of income of the period in which it
                     is declared
                 B) Realized Gains and Losses--gains and losses from
                     the sale of marketable equity securities,
                     calculated by comparing the proceeds from the sale
                     of the marketable equity securities with the
                     original cost of the marketable equity securities,
                     should be included in the determination of income
                     of the period in which they occur
         b) Illustration--during year 1 a corporation purchased shares
             of stock in Company A for $15,000, Company B for $25,000,
             and Company C for $30,000; on December 31 of year 1 the
             market value of Company A's stock was $17,000, the market
             value of Company B's stock was $20,000, and the market
             value of Company C's stock was $31,000; during year 2 the
             corporation purchased shares of stock in Company D for
             $10,000 and sold the stock in Company B for $21,000; on
             December 31 of year 2 the market value of Company A's stock


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        was $14,000, the market value of Company C's stock was
        $32,000, and the market value of Company D's stock was
        $11,500
            Year 1:
                             _Cost_    Market
                Company A    15,000    17,000
                Company B    25,000    20,000
                Company C    30,000    31,000
                             70,000    68,000

                 Unrealized Gain or Loss--Equity       2,000
                     Market Adjustment--Available-for-Sale       2,000

            Year 2:
                                 _Cost_   Market
                 Company A       15,000   14,000
                 Company C       30,000   32,000
                 Company D       10,000   11,500
                                 55,000   57,500

                 Cash                                 21,000
                 Loss on Sale of Stock Investments     4,000
                      Stock Investments                        25,000

                 Market Adjustment--Available-for-Sale 2,000
                     Unrealized Gain or Loss--Equity             2,000

2)   Trading Securities--trading securities are marketable equity
     securities that are bought and held primarily for sale in the
     near term to generate income on short-term price differences
     a) Accounting
         I) Balance Sheet
             A) Valuation--equity securities should be reported at
                 cost adjusted to fair market value, through the use
                 of a market adjustment account, determined at the
                 balance sheet date
        II) Income Statement
             A) Dividend Income--dividend income, equal to the cash
                 dividend payment, should be included in the
                 determination of income of the period in which it
                 is declared
             B) Unrealized Gain or Loss--the unrealized gain or
                 loss from the adjustment of equity securities to
                 fair market value should be included in the
                 determination of income of the period in which it
                 occurs
             C) Realized Gains and Losses--gains and losses from


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                         the sale of marketable equity securities,
                         calculated by comparing the proceeds from the sale
                         of the marketable equity securities with the
                         original cost of the marketable equity securities,
                         should be included in the determination of income
                         of the period in which they occur
            b)   Illustration--during year 1 a corporation purchased shares
                 of stock in Company A for $15,000, Company B for $25,000,
                 and Company C for $30,000; on December 31 of year 1 the
                 market value of Company A's stock was $17,000, the market
                 value of Company B's stock was $20,000, and the market
                 value of Company C's stock was $31,000; during year 2 the
                 corporation purchased shares of stock in Company D for
                 $10,000 and sold the stock in Company B for $21,000; on
                 December 31 of year 2 the market value of Company A's stock
                 was $14,000, the market value of Company C's stock was
                 $32,000, and the market value of Company D's stock was
                 $11,500
                     Year 1:
                                      _Cost_    Market
                         Company A    15,000    17,000
                         Company B    25,000    20,000
                         Company C    30,000    31,000
                                      70,000    68,000

                         Unrealized Gain or Loss--Income        2,000
                             Market Adjustment--Trading                  2,000

                     Year 2:
                                         _Cost_   Market
                         Company A       15,000   14,000
                         Company C       30,000   32,000
                         Company D       10,000   11,500
                                         55,000   57,500

                         Cash                                  21,000
                         Loss on Sale of Stock Investments      4,000
                              Stock Investments                         25,000

                         Market Adjustment--Trading             2,000
                             Unrealized Gain or Loss--Income             2,000

2.   Significant Influence--significant influence exists when the investor
     owns 20% or more of the common stock of a corporation
     a. Accounting
         1) Balance Sheet
             a) Valuation--the carrying amount of the equity security


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             should be its cost increased by the investor's share of the
             investee's earnings and decreased by the investor's share
             of the investee's cash dividends
     2) Income Statement
         a) Investee Income--the investor's share of the investee's
             earnings should be included in the determination of income
             of the period in which they occur
         b) Realized Gains and Losses--gains and losses from the
             sale of the equity securities, calculated by comparing the
             proceeds from the sale of the equity securities with the
             adjusted carrying amount of the equity securities, should
             be included in the determination of income of the period
             in which they occur
b.   Illustration--during year 1 a corporation purchased 40% of the
     common stock of Company A for $40,000 when the book value of the
     net assets of Company A was $100,000; during year 1 Company A
     reported net income of $15,000 and paid dividends of $12,000
         Stock Investment                                 40,000
             Cash                                                  40,000

         Stock Investment                                  6,000
         (40% x 15,000)
             Investment Income                                     6,000

         Cash                                              4,800
         (40% x 12,000)
              Stock Investment                                     4,800




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