Time Warner's management believes in aggressive growth through investing in the shares of existing

companies. Besides purchasing shares, companies also purchase other securities such as bonds issued by
corporations or by governments. Companies can make investments for a short or long period of time, as a
passive investment, or with the intent t o control another company. As you will see in this chapter, the way in
which a company accounts for its investments is determined by a number of factors.
The content and organization of Chapter 12 are as follows.

Cash management
Investment income
Strategic reasons

Recording acquisition of
bonds
Recording bond interest
Recording sale of bonds

Holdings of less than 20%

Holdings between 20%
and 50%
Holdings of more than
50%

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Categories of securities
Statement of financial
position presentation
Realized and unrealized
gain or loss
Classified statement of
financial position

Corporations purchase investments in debt or share securities generally

for
one of three reasons. First, a corporation may have excess cash that it
~i~~~~~ corporations invest
does
not need for the immediate purchase of operating assets. For examin debt and share securities.
ple, many companies experience seasonal fluctuations in sales. A marina
has more sales in the spring and summer than in the fall and winter. At the end of
an operating cycle, the marina may have cash on hand that is temporarily idle until
the start of another operating cycle. It may invest the excess funds to earn a greater
return than it would get by just holding the funds in the bank. Illustration 12-1
depicts the role that such temporary investments play in the operating cycle.

Illustration 12-1
Temporary investments and
the bperating cycle