Bestway International is an import export company Due to

the nature #3732

Bestway International is an import-export company. Due to the nature of its business, the
company often has significant amounts of cash on hand. Some of this cash has been invested
in other companies as a means of achieving vertical integration. These investments are
intended to be held for many years. At other times, Bestway s management invests extra cash
in short-term investments. Management believes that it is better to have excess cash earning
some return rather than just sitting in a bank account.On December 31, 2011, Bestway's year
end the company had the following short-term equity investments in marketable securities:Both
these investments were purchased with the intention of selling them as soon as they rose
significantly in value or Bestway needed the cash, whichever occurred first.Bestway's CEO has
recently approached you, the corporate controller, with some exciting news. The company plans
to sell a significant bond issue in 2012 to provide funding for a large expansion into Eastern
European markets. The CEO wants the statement of earnings for 2012 to be as strong as
possible, and therefore tells you to record all the investments at their cost in the balance sheet
on December 31, 2011, so that the increase in value will be reflected as a large gain when they
are sold in 2012.The CEO says he knows that assets are usually recorded at their cost, and that
accountants tend to be conservative. Accordingly, he does not see any problem with showing
the investments at their cost at the end of 2011, and waiting until they are sold in 2012 to report
any gain on them.Required:Is the CEO correct? Refer to accounting principles in preparing your
response to the CEO's position. Your response should include an outline of the proper
accounting treat¬ment for short-term investments such as these, and a brief explanation of the
reasoning behind it.View Solution:
Bestway International is an import export company Due to the nature

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