Question

Explain the expected impact of the downturn in the stock and bond markets on the financial...

Explain the expected impact of the downturn in the stock and bond markets on the financial statements of a corporation that holds investments in listed stocks and bonds.

grading rubric

Explanation and application of the various reporting methods for debt investments, including the accounting for a decrease in fair values. 3 points
Explanation and application of the reporting method for equity investments, for which the investor does not have significant influence, including the accounting for a decrease in fair values. 1 point
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Answer #1

The investment in stocks and bonds as securities does come without the risk of downturn. A downturn is an event in which the prices of the quoted securities fall due to one or more of the factors. If a comonay has investment into these then any downturn will affcet the financial statements of the company. The assets side of the balance sheet will reduce as due to fall in the prices of those stocks and bonds. So, the strength of the balance sheet will reduce if the downturn occurs.

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