long-term investment

Examples of long-term investment in the following topics:

• Types of Long-Lived Assets

  • There are two major types of long-term assets: tangible and non-tangible.
  • Long-term investments are often referred to simply as "investments. " Long-term investments are meant to be held for many years and are not intended to be disposed of in the near future.
  • They usually consist of three possible types of investments: investments in securities (such as bonds), common stock, or long-term notes.
  • Other types of investments include investments in special funds-- e.g. sinking funds or pension funds-- and different forms of insurance.
  • Fixed assets-- also referred to as property, plant, and equipment-- are purchased for continued and long-term use in generating profit for a business.

• Amortized Cost Method

  • Debt held to maturity is classified as a long-term investment and it is recorded at the market value (original cost) on the date of acquisition.
  • In order to record the interim interest revenue and report the investment on the balance sheet, it is necessary to prepare an amortization schedule for the debt.
  • The Z Company's investment in Tee company is shown on the balance sheet as follows:

• Characteristics of Bonds

  • Variations exist in bond types, payment terms, and features.
  • Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure .
  • As long as all due payments have been made, the issuer has no further obligations to the bond holders after the maturity date.
  • The yield is the rate of return received from investing in the bond.
  • High-yield bonds are bonds that are rated below investment grade by the credit rating agencies.

• Key Considerations for the Statement of Cash Flows

  • Investing activities - the acquisition and disposal of long term assets and other investments not included in cash equivalents.
  • Transactions include the sale and acquisition of property, plant, and equipment; the collection and granting of long-term loans to others; and the trading of available-for-sale and held-to-maturity securities of other businesses.
  • Securities that are held-to-maturity are those that a business plans to hold onto until the security's term is up.
  • An available-for-sale security is an investment that does not qualify as "held-to-maturity" or "trading".
  • Transactions include cash received by the company issuing its own capital stock and bonds, as well as any other short- or long-term borrowing it may do.

• Equity Method

  • Equity method is the process of treating equity investments (usually 20–50%) of companies.
  • The investor's proportional share of the associate company's net income increases the investment; a net loss, or proportional payment of dividends, decreases the investment.
  • When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations.
  • A calculation can be made to assess whether an equity is over- or under-priced, compared with a long-term government bond.
  • It is the ratio of the dividend yield of an equity and that of the long-term bond.

• Activities of the Business: Financing, Investing, and Operating

  • Activities of the business include operating activities and non-operating activities such as investing activities, and financing activities.
  • Activities of the business include operating activities, investing activities, and financing activities .
  • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
  • Investing activities include purchases or sales of an asset (assets can be land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, payments related to mergers and acquisitions, and dividends received.
  • Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities.

• Accounting for Interest Earned and Principal at Maturity

  • Nominal, principal, par, or face amount —is the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term.
  • This can result in an investor receiving less or more than his original investment at maturity.
  • As long as all due payments have been made, the issuer has no further obligations to the bond holders after the maturity date.
  • The maturity can be any length of time, although debt securities with a term of less than one year are generally
  • Remember the original entry debited the held to maturity investment account and credit cash.

• Debt-to-Equity Ratio

  • Debt is typically a long-term liability that represents a company's obligation to pay both principal and interest to purchasers of that debt.
  • Equity represents ownership of a company, and does not include any agreed upon repayment terms.
  • When used to calculate a company's financial leverage , the debt-to-equity ratio includes only long-term liabilities in the numerator and can even go a step further to exclude the current portion of the long-term liabilities.
  • This means that other short-term liabilities, such as accounts payable, are excluded when calculating the debt-to-equity ratio.
  • Graph of how infamous investment banks were leveraged prior to the credit crisis of 2008.

• Factors Affecting the Price of a Bond

  • A bond's book value is affected by its term, face value, coupon rate, and discount rate.
  • A bond's term, or maturity, is how long the issuing company has until it must repay the entirety of what it owes.
  • Sometimes a business will make interest payments during the term of the bond, but a term ends when all of the payments associated with the bond are completed.
  • The discount rate is a measure of what the bondholder's return would be if he invested his money in another security.
  • In practical terms, the discount rate generally equals the coupon rate or interest rate associated with similar investment securities.

• Current Maturities of Long-Term Debt

  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
  • Examples of long-term liabilities are debentures, bonds, mortgage loans and other bank loans (it should be noted that not all bank loans are long term since not all are paid over a period greater than one year. ) Also long-term liabilities are a way for a company to show the existence of debt that can be paid in a time period longer than one year, a sign that the company is able to obtain long-term financing .
  • Bonds are a form of long-term debt because they typically mature several years after their original issue date.
  • Explain the reporting of the current portion of a long-term debt