A company invests $100,000 in U.S. Savings Bonds. It also invests $100,000 in another company's stock. How are these transactions represented on the income statement, balance sheet, and cash flow statement?
2007-09-20 15:34:40 · 4 answers · asked by Jay J 1 in Business & Finance ➔ Investing
If the bond is an asset, it must correspond to a liability or an equity. How does a bond correspond to a liab. or equity?
2007-09-20 15:49:59 · update #1
Not all bonds are liabilities. If you've acquired a bond, it's an investment to you, an asset. But if you have ISSUED a bond, then it's a liability. When you acquire a bond, you have to pay for it, so
Dr Investment in bond (Asset)
Cr Cash
The investment in bond is usually long term since the maturity date is usually some years away.
If you've issued a bond,
Dr Cash
Cr Bond payable (liability)
Investment in another company's equity can be investment in subsidiary, associated company or other investment, depending on the percentage of equity you hold (> 51% or between 20% and 50%)
2007-09-20 20:51:39 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋
Neither of these are liabilities. They flow down to the bottom of the balance sheet and become part of equity. They are both recorded, I believe, as investments on the balance sheet. I do not believe they have any impact on cash flow as there is no cash flowing except to the extent that the company stock might pay a dividend. The interest on Savings Bonds is accrued and not paid until they are cashed in. I am no accountant but I assume that the Savings Bond would be marked to market annually.
2007-09-20 23:00:25 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Hey Jey,
You yourself saying that the company is "investing" in both Bonds and Shares, which means any interest or dividend income from both of them constitutes income from investments. When the bond of share is sold in the market, then the profit / loss made of the investment will be capital gains or loss.
In balance sheet, such investments should be declared under the heading INVESTMENTS.
If the company is in the business of making buying the stock/bond (like stock brokers), then any income out of such purchase will constitute normal business income and taxed accordingly.
In balance sheet, such assets will be shown as current assets or stock in trade.
As far as the cashflow statements, there is no major difference as both will have the similar cash outflow and inflows.
2007-09-20 22:59:13 · answer #3 · answered by Achudha 2 · 0⤊ 0⤋
the savings bond is listed as an intangible asset on the balance sheet. I am not sure about the investment into another company's stock...I am going to attempt to look it up and I will revise my answer if I figure it out.
2007-09-20 22:45:21 · answer #4 · answered by ~daph~ 2 · 0⤊ 0⤋