Q3RQ. - Horngren'S Financial And Managerial Accounting

Question

Why would a company invest in debt or equity securities?

Step-by-Step Solution

Answer

Investment is made in debt and equity securities to generate benefits from excess cash and achieve goals.

Step 1: Definition of Investment

Investment refers to acquiring any asset to generate income or gain from the increase in value. It might be acquired for generating regular income or to generate a long-term gain.

Step 2: Investment in Debt or Equity Securities by Companies

1. Businesses invest in debt and equity to generate income through dividends and interest from the excess cash available to them that cannot be utilized in normal business operations.
2. Another purpose for investing in debt and equity is to achieve business goals. It includes goals such as harmonizing relations with the vendors by accepting debt securities.