Accounting Notes
Short and Long Term Investments
Short Term Investments:
Purchase of investment
Short Term Investment Shares * Purchase Price
Cash Shares * Purchase Price
Receipt of dividends
Cash Cash received
Dividend Revenue Cash received
Adjusting trading investments to market value
Unrealized Gain (Loss) on trading
Investments Difference in MV and cost
Short Term Investment Difference in MV and cost
Note: The short term investments can never be recorded at an amount greater than the
original purchase price. Therefore, if the market value of the investments was to
increase then the investments could be increased only up to the original cost.
Sale of investments
Cash Selling Price
Gain on Sale of Investments Difference
Short Term Investments Original Cost
Note: If there was a loss on the sale then the loss would be debited to ˝Loss on Sale of
Investments ˛
Long Term Available for Sale Investments:
- recorded using the market value method
Purchase of investments
LT Available for Sale Investments Shares * Purchase Price
Cash Shares * Purchase Price
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Accounting Notes
Short and Long Term Investments
Long Term Available for Sale Investments:
Receipt of dividends
Cash Cash received
Dividend Revenue Cash received
Adjusting investments to market value
Allowance to Adjust Investment to Market Market Value - Book Value
Unrealized Gain on Available for Sale
Investments Market Value - Book Value
Note: Book Value = Original cost ± Allowance to Adjust Investments to Market
The Allowance to Adjust Investments to Market is a contra-asset account to the
Long Term Available for Sale Investments
Sale of investments
Cash Sales Price
Loss on Sale of Investments Difference
LT Available for Sale Investments Cost
Equity Method Investments:
- investor owns 20% - 50% of the investee š stock
- investor can significantly influence the investee š decisions
Purchase of investment
LT Equity Method Investment Purchase Cost
Cash Purchase Cost
Recording the company s (investor s) share of the investee s net income
LT Equity Method Investment Net Income * %
Equity Method Investment Revenue Net Income * %
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Accounting Notes
Short and Long Term Investments
Equity Method Investments:
Recording the receipt of dividends
Cash Dividends * %
LT Equity Method Investment Dividends * %
Sale of investments
Cash Sales price
Loss on sale of Investment Difference
LT Equity Method Investment Book Value
Long Term Investment in Bonds:
Purchase of bonds
The issue price of a bond is stated as a percentage of the Face Value of the bond.
(Example: If the bond is sold at 104, this means the bond was sold for 104% of the bond š
face value.)
LT Investment in Bonds Face Value * Issue price
Cash Face Value * Issue price
Recording the receipt of interest
Cash Face Value * Int. % * (# months/12)
Interest Revenue Face Value * Int. % * (# months/12)
Accruing of interest
Interest Receivable Face Value * Int. % * (# months/12)
Interest Revenue Face Value * Int. % * (# months/12)
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Student Learning Assistance Center, San Antonio College, 2004
Accounting Notes
Short and Long Term Investments
Long Term Investment in Bonds:
Amortizing a bond discount/premium
LT Investment in Bonds [(FV - CV) / Life of bond] * (# months/12)
Interest Revenue [(FV - CV) / Life of bond] * (#
months/12)
Foreign Currency Transactions:
Sale of goods on account
Accounts Receivable Foreign Currency Amount * Exchange Rate
Sales Foreign Currency Amount * Exchange Rate
Collection on account
Cash Foreign Currency Amount * Exchange Rate
Foreign Currency Transaction Loss Difference
Accounts Receivable Original amount owed
Purchase of goods on account
Inventory Foreign Currency Amount * Exchange Rate
Accounts Payable Foreign Currency Amount * Exchange Rate
Payment on account
Accounts Payable Original Amount due
Foreign Currency Trans Gain Difference
Cash Foreign Currency Amount * Exchange
Rate
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