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MGT120H5 (Seguin) - Lecture notes for Chapter 5 (Short term investments and Receivables ) + tutorial activity

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University of Toronto Mississauga
Catherine Seguin

Chapter 5 lecture 6ShortTerm Investment and ReceivablesFebruary 25th 2014Account for Short Term Investments Cashed within 12 months of date company have extra money on hand Shortterm investments marketable securities are investments that a company plans to hold for one year or lessBought shares of another company hold on to less than one year are the most liquid asset after cashShort term asset account Debit current asset Credit Cash ExSuppose that Celestica Inc purchases McCain Foods Ltd shares on Dec 18 paying 100000 cashShort term investment 100000Cash 100 000Purchased investments Ex On Dec 27 Celestica receives a cash dividend of 4000 from McCainCash 4000Dividend Revenue 4000Received cash dividendDividend revenue is considered other revenues Ex Celestica scal year ends on Dec 31 and the investment in McCain has a current market value of 102000 on this dateGAIN because the market value 102000 is Greater than Celesticas investment costCost100000FMV 102 000Gain2000 Unrealizedbecause the shares have not been sold it means the cost of the shares have changed therefore journal entry is required Cr Unrealized gain other gains Shortterm Investments 2000Unrealized gain on investment 2000ExIf the Celestica investment in McCain shares had decreased in value to 95000Unrealized Lossbecause Celestica has not yet sold the investmentUnrealized loss on investment 5000Temporary investment 5000Balance Sheettemporary assets are current assetsIncome Statementtemporary asset can either earn Interest Revenue or dividend revenue All gainslosses are also reported on the incomeQuestion 1ABC Co purchased a temporary investment in shares of XYZ Co for 14000 At year end the investment had a market value of 12000 The 2000 decrease in value in the temporary investment should bea recorded as a realized loss on the income statementb deducted from the value of the asset on the balance sheetc only disclosed as part of the market value of marketable securitiesd both A and BAnswer Accounts and Notes ReceivableReceivables are the third most liquid assets after cash and shortterm investmentsResults from selling goods and services on credit and by lending moneyAccounts receivable are a current asset on the balance sheetApply internal controls to receivablesEstablishing Internal Control over CollectionsBusinesses that sell on credit receive most of their cash receipts by mail
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