AccountingPrinciplesInvestments幻灯片.pptxVIP

;;Corporations purchase investments in debt or stock securities generally for one of three reasons.;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.;RECORDING ACQUISITION OF BONDS;RECORDING BOND INTEREST;RECORDING SALE OF BONDS;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:;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 December 31, prepare the entry to accrue interest earned by December 31.;Kuhl reports Interest Receivable as a current asset in the balance sheet. It reports Interest Revenue under “Other revenues and gains” in the income statement. Kuhl reports receipt of the interest on January 1 as follows;Hey, I Thought It Was Safe! It is often stated that bond investments are safer than stock investments. After all, with an investment in bonds, you are guaranteed return of principal and interest payments over the life of the bonds. However, here are some other factors you may want to consider: ? In 2013, the value of bonds fell by 2% due to interest rate risk. That is, when interest rates rise, it makes the yields paid on existing bonds less attractive. As a result, the price of the existing bond you are holding falls. ? While interest rates are currently low, it is likely that they will increase in the future. If you hold bonds, there is a real possibility that the value of your bonds will be reduced. ? Credit risk also must be considered. Credit risk means that a company may not be able to pay back what it borrowed. Former bondholders in companies like General Motors, United Air Lines, and Eastman Kodak saw their bond values drop substantially when these companies de