Fegan Corporation has purchased two securities for its portfolio. The first is a stock investment in Plummer Corporation, one of its suppliers. Fegan purchased 10% of Plummer with the intention of holding it for a number of years, but has no intention of purchasing more shares. The second investment was a purchase of debt securities. Fegan purchased the debt securities because its analysts believe that changes in market interest rates will cause these securities to increase in value in a short period of time. Fegan intends to sell the securities as soon as they have increased in value.

Write a memo to Sam Nichols, the chief financial officer, explaining how to account for each of these investments. Explain what the implications for reported income are from this accounting treatment.

  • CreatedJanuary 30, 2014
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