Case 13-7 Ethics and Investments

re Ethics and Investments You are an accountant for Davanzo Com pany. The For 0134 oresident of the company calls you into her office 013.6 and says, "I want to ask you about two issues. First, need to sell one of our investments to raise $1 million because I think I have found a better invest- ment. We could sell the bonds of Company X, which are currently worth $I million even though they have an amortized cost basis of $950,000. But I don't want to sell them because I like the steady stream of cash flow we get related to interest. Or we could sell the bonds in that dog, Company Z. These bonds are also worth $1 million, but they cost us $1.2 million. I hate to admit we made such a big mistake, and if they can somehow avoid bank- ruptcy, we may actually recover our investment. And then there's that loss. I don't want to report that. Second, I am going to use the $1 million to buy about 20% of the shares of Company M, but I seem to remember that there is some accounting rule that might affect how much we buy. I was also wondering about buying some of Company M's convertible preferred stock so we can convert that into a large ownership position in the future. Let me know what you think." You are aware that Company M is a new company that is not yet listed on the stock market, has been making losses, and is expected to continue making losses for a few more Rec 1. 2. 3. 4 C13.9 A years Required: discuss the issues raised by this situation. From financial reporting and ethical perspectives, alyzing Starbucks's Investments Disclo- res re Ethics and Investments You are an accountant for Davanzo Com pany. The For 0134 oresident of the company calls you into her office 013.6 and says, "I want to ask you about two issues. First, need to sell one of our investments to raise $1 million because I think I have found a better invest- ment. We could sell the bonds of Company X, which are currently worth $I million even though they have an amortized cost basis of $950,000. But I don't want to sell them because I like the steady stream of cash flow we get related to interest. Or we could sell the bonds in that dog, Company Z. These bonds are also worth $1 million, but they cost us $1.2 million. I hate to admit we made such a big mistake, and if they can somehow avoid bank- ruptcy, we may actually recover our investment. And then there's that loss. I don't want to report that. Second, I am going to use the $1 million to buy about 20% of the shares of Company M, but I seem to remember that there is some accounting rule that might affect how much we buy. I was also wondering about buying some of Company M's convertible preferred stock so we can convert that into a large ownership position in the future. Let me know what you think." You are aware that Company M is a new company that is not yet listed on the stock market, has been making losses, and is expected to continue making losses for a few more Rec 1. 2. 3. 4 C13.9 A years Required: discuss the issues raised by this situation. From financial reporting and ethical perspectives, alyzing Starbucks's Investments Disclo- res