Investments in Securities
Response to the following problem:
Companies must apply the proper accounting methods and procedures with respect to investments in debt and equity securities. Generally accepted accounting principles differentiate the accounting for investments in trading securities, available-for-sale securities, and held-to-maturity securities.
Required
1. Explain why a company invests in debt and equity securities.
2. Explain what factors a company should consider in determining which investments it should classify in each of the three categories, and how these factors affect the accounting treatment for unrealized gains and losses.