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Lecture Principles of financial accouting - Chapter 15: Investments and international operations

After completing this chapter you should be able to: Distinguish between debt and equity securities and between short-term and long-term investments, describe how to report equity securities with controlling influence, compute and analyze the components of return on total assets,. | Chapter 15 Investments and International Operations McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15: Investments and International Operations Basics of Investments Companies transfer excess cash into investments to produce higher income. Some companies are set up to produce income from investments. Companies make investments for strategic reasons. Motivation for Investments C1 Companies make investments for at least three reasons. First, companies transfer excess cash into investments to produce higher income. Second, some entities, such as mutual funds and pension funds, are set up to produce income from investments. Third, companies make investments for strategic reasons. Examples are investments in competitors, suppliers, and even customers. Short-Term Investments C1 Short-term investments are securities that: Management intends to convert to cash within one year or the operating cycle, whichever is longer. Are readily . | Chapter 15 Investments and International Operations McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15: Investments and International Operations Basics of Investments Companies transfer excess cash into investments to produce higher income. Some companies are set up to produce income from investments. Companies make investments for strategic reasons. Motivation for Investments C1 Companies make investments for at least three reasons. First, companies transfer excess cash into investments to produce higher income. Second, some entities, such as mutual funds and pension funds, are set up to produce income from investments. Third, companies make investments for strategic reasons. Examples are investments in competitors, suppliers, and even customers. Short-Term Investments C1 Short-term investments are securities that: Management intends to convert to cash within one year or the operating cycle, whichever is longer. Are readily convertible to cash. Short-term investments do not include cash equivalents. Cash equivalents are investments that are both readily converted to known amounts of cash and mature within three months. Cash equivalents are investments that are both readily converted to known amounts of cash and mature within three months. Many investments, however, mature between 3 and 12 months. These investments are short-term investments, also called temporary investments and marketable securities. Specifically, short-term investments are securities that (1) management intends to convert to cash within one year or the operating cycle, whichever is longer, and (2) are readily convertible to cash. Short-term investments are reported under current assets and serve a purpose similar to cash equivalents. Long-Term Investments Long-term investments: are not readily convertible to cash. are not intended to be converted to cash in the short term. are reported in the noncurrent section of the balance sheet, often in its