A member of a local entrepreneurial group is looking for your advice on the classification and journalizing of investments for financial statements. There is a private firm that has excess cash that they want to put into investments so that they can earn money while developing their next business model. The investment strategies are being defined by financial planners, but the group needs to know how investments can impact the viewing of the financial statements. The investment strategies are a blending of short-term and long-term investments in publicly traded stocks.

The short-term investments will look to leverage knowledge of markets to make short term gains by either buying low and selling high; or selling short in companies that are expected to decline in value. These short-term investments will likely be held in the 3 to 9-month range.

The long-term investments will look to sacrifice market fluctuation gains in exchange for consistent dividend policies to generate stable cash flows. These investments are intended to be held for as long as possible to stabilize the needed cash flows in the future.

You, aspiring CPA, were recently approached by this group because they were not sure about the different terms that were coming up when it came to the proper accounting of these investments. They also wanted to get a sense of what changes would happen if they were to consider an IPO to go pubic and how this would impact their classification of investments as they currently follow ASPE guidelines.