ECON 2 Lecture Notes - Lecture 2: Cash Flow, Commercial Paper, Equity Method
Document Summary
Motivation: earn high rate of return, secure certain operating or financing arrangements with another company. Classification and measurement of financial assets (two criteria) Debt investment: companies measure debt investment at amortized cost or fair value. Amortized cost: initial recognition amount of the debt investment minus repayments plus or minus cumulative amortization and net of any reduction for uncollectibilty. If the debt investment meets both criteria mentioned above. Fair value: for debt investments that do not meet one or both of the above criteria: amount for which an asset could be exchanged between knowledgeable willing parties in an arm"s length transaction. Equity investments: generally recorded & reported at fair value. Do not have a maturity date and not fixed interest and principal payment schedule. Debt securities: represent a creditor relationship with another company. Government securities, municipal securities, company bonds, convertible debts, commercial paper.
