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E17-1B (Investment Classifications)For the following investments identify whether they are: 1. Trading securities 2. Available-for-sale securities 3. Held-to-maturity securities Each case is independent of the other. (a) Purchase bonds maturing in 20 year

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E17-1B (Investment Classifications)For the following investments identify whether they are;1. Trading securities;2. Available-for-sale securities;3. Held-to-maturity securities;Each case is independent of the other.;(a) Purchase bonds maturing in 20 years. The company intends to use the cash flow generated by the interest payments on the bond to provide employee bonuses.;(b) Common stock was purchased based on a recommendation from the CEO?s broker. The broker believes the price will increase substantially over the next couple of months.;(c) An investment grade bond that matures in 8 years was purchased. The company will probably hold the bonds until they mature at which time the proceeds will be used to retire maturing debt.;(d) Five-year bonds of a troubled company were purchased this year for substantially below par value. The bonds mature in 2 months.;(e) Excess cash was used to purchase preferred stock. The preferred stock may need to be sold within the next year if a planned expansion is completed.;(f) 15% of the outstanding stock of another company was purchased last year. The company is considering purchasing another 20% of the company.

 

Paper#78468 | Written in 18-Jul-2015

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