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Problem - Ethics and Investments - You are an accountant for Davanzo Company. The president of the company calls you into her office and says, "I want to ask you about two issues. First, we need to sell one of our investments to raise $1 million because I think I have found a better investment. We could sell the bonds of Company X, which are currently worth $1 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 bankruptcy, 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 years.
Required - From financial reporting and ethical perspectives, discuss the issues raised by this situation.
A required rate of return for the bond can be computed as . Currently, the risk free rate is 0.5% and the risk premium is 2% above the risk free rate.
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TACC615 Professional Accounting Capstone Assignment Help and Solution, Australian National Institute of Management and Commerce - Assessment Writing Service
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Thomas is concerned about his company's ability to pay off its short-term debts. If he wants to know more about his company's liquidity, what should he do?
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