1. You are the controller for Bizbee Corporation, and a few days ago you provided a draft of this yearÂ’s financial statements to the CEO of the company, Mr. Bizbee. You rode the elevator with him today, and he began to quiz you about how you reported the companyÂ’s investments in debt and equity securities. He said to you, Â“When I took accounting in college, investment securities were reported at historical cost. I remember what we paid for some of our investments, and the numbers on the financial statements donÂ’t match those amounts! WhatÂ’s going on? Be in my office this afternoon to explain!Â”
The valuation approach was used on the balance sheet for the investments. For the meeting, provide an analysis on why you used this approach. Assume your company has only debt and equity securities where the equity interest is less than 20 percent. The companyÂ’s debt securities are all classified as held-to-maturity, but it has both trading and available-for-sale equity securities.
2. Companies have many options when it comes to investing excess cash. For example, they can invest their cash in savings accounts, money market accounts, or Treasury notes and billsÂ—all of which have limited rates of return but are relatively risk-free. For a higher rate of return, companies can invest in themselves through new projects, expansion or enhancement. Many companies, however, choose to invest in the debt or equity securities of other companies rather than any of these other options.
Evaluate some of the reasons companies invest in the debt and equity securities of other companies. Discuss those reasons and provide examples.
Using proper APA format, support your answers with appropriate scholarly research, examples, and evaluation.