1) Describe the three different methods of recorded investments? 2) What is the journal entry to...

1) Describe the three different methods of recorded investments?

2) What is the journal entry to record a bond redeemed at a loss?

Expert Solution

Ownership Investments

Ownership is what comes to mind for most people when the word investment is batted around. These are the most volatile and profitable class of investment. The following are examples

Stocks

Owning stock means owning a portion of a company. It may be a miniscule stake, but it's ownership.

Lending Investments

Lending money is a category of investing. The risks generally are lower than for many investments and, consequently, the rewards are relatively modest.

A bond issued by a company or a government will pay a set amount of interest over a set period of time. The only real risk is that the company or government will go bankrupt, in which case the bondholder may get little or none of the investment back.

Cash Equivalents

These are investments are "as good as cash," which means that they can be converted back to cash easily and quickly.

Money Market Funds

Money market funds are similar to savings accounts and can be purchased at any bank. The difference is that the investor commits to leaving the money alone for a period of time in return for a slightly higher rate of interest. The time period is as little as three months and no longer than a year.

Money market funds are more liquid than other investments, meaning you can write checks out of money market accounts just as you would with a checking account. Although, once you start writing checks on it you've erased much of its value as an investment.

When it is time to redeem the bonds, all premiums and discounts should have been amortized, so the entry is simply a debit to the bonds payable account and a credit to the cash account.

ekkarill92 answered 2 years ago

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