38) Held-to-maturity debt investments are categorized as long-term assets on the balance sheet,
regardless of the maturity date.
39) Trading debt investments are categorized as current assets.
40) Trading debt investments are debt securities which the investor intends to sell in the very near future
with the intent of generating a profit on the quick sale.
41) Available-for–sale debt investments include all trading debt and held–to-maturity debt investments.
42) Controlling interest equity investments are debt securities in which the investor owns more than 50%
of the investee’s voting stock.
43) Significant influence equity investments are reported as current assets on the balance sheet.
44) No significant influence equity investments generally involve the ownership of less than 20% of the
investee’s voting stock.
45) Short-term investments ________.
A) are debt and equity securities that the investor expects to hold for more than a year
B) are investments in debt securities or equity securities in which the investor holds less than 50 percent
of the voting stock and that the investor plans to sell two years after the balance sheet date
C) are investments in debt and equity securities that are readily marketable and that the investor intends
to convert to cash within one year
D) are investments in debt securities that the investor intends to hold until maturity
46) Long-term investments ________.
A) include all trading debt investments and held–to-maturity debt investments
B) are investments in debt and equity securities that are readily marketable and that the investor intends
to sell in one year or less
C) include debt and equity securities that the investor expects to hold longer than one year or debt or
equity securities that are not readily marketable
D) are investments in debt securities or equity securities in which the investor holds less than 20 percent
of the voting stock and that the investor plans to sell in the very near future
47) Trading debt investments include ________.
A) debt securities that the investor expects to hold longer than one year or debt securities that are not
readily marketable
B) investments in debt securities that are not readily marketable and that the investor intends to hold
until they mature
C) investments in debt securities that the investor intends to hold until they mature
D) debt securities that the investor plans to sell in the very near future
48) Which type of debt security is always categorized as a current asset?
A) available-for-sale debt investments
B) trading debt investments
C) held-to–maturity debt investments
D) Each of these choices can be categorized as long-term if the investor intends to hold the investment for
longer than one year.
49) Equity securities in which the investor lacks the ability to participate in the decisions of the investee
company are classified as ________ investments.
A) controlling interest equity
B) no significant influence equity
C) significant influence equity
D) available-for–sale equity
50) Equity securities in which the investor owns less than 20% ownership in the voting stock of the
investee generally can be classified as ________ equity investments.
A) significant influence
B) controlling interest
C) held-to–maturity
D) no significant influence
51) Which statement regarding investments in equity securities is incorrect?
A) Significant influence equity investments are always reported as long-term assets on the balance sheet.
B) Significant influence equity investments are consolidated into the investor’s financial statements.
C) Investments in equity securities are classified into three specific types based on the investor’s level of
influence over the investee company.
D) Generally, no significant influence exists if there is an ownership interest of less than 20% of the
investee’s voting stock.
52) Trading debt investments are classified on the balance sheet as ________.
A) current or long-term assets, depending on how long the investor intends to hold the debt securities
B) current assets
C) intangible assets
D) current liabilities
53) Companies invest in trading investments with the intent of ________.
A) increasing the amount of long-term assets
B) gaining the controlling rights of the investee
C) holding the investment until maturity
D) generating a profit on a quick sale
54) Which of the following will be classified as an available-for-sale debt investment?
A) debt securities which the investor intends to sell in the very near future
B) debt securities the investor intends to hold and has the ability to hold until they mature
C) all investments in Treasury bills
D) all debt securities that are not trading debt investments or held-to-maturity debt investments
55) ________ investments are categorized as either current assets or long-term assets on the balance sheet,
depending on the maturity date.
A) Held-to-maturity debt
B) Serial bond debt
C) Trading debt
D) Available-for-sale debt
56) Available-for–sale (AFS) debt investments that are expected to be held longer than a year are reported
as ________.
A) equity
B) current assets
C) long-term assets
D) either current assets or long-term assets
57) Available-for–sale (AFS) debt investments are reported as ________ if the business expects to sell them
within one year.
A) current assets
B) equity
C) long-term assets
D) either current assets or long-term assets
58) ________ are equity securities in which the investor owns between 20% and 50% of the investee’s
voting stock.
A) Held-to-maturity investments
B) Significant influence investments
C) Controlling interest investments
D) Available-for-sale investments
59) Held-to-maturity investments applies only to debt securities because ________.
A) these securities earn periodic interest
B) equity securities do not mature on a specific date
C) these are long-term investments
D) equity securities are held for a short period of time
60) Significant influence equity investments are reported as ________ on the balance sheet.
A) current assets
B) either current assets or current liabilities
C) long-term assets
D) either current assets or long-term assets
61) Which of the following is a condition for recording an available-for-sale debt investment?
A) The investor intends to hold the debt security until it matures.
B) The investor intends to sell the security in the very near term.
C) The investment must be a debt security.
D) The investor has the ability to hold the security until it matures.
62) Greene Corporation pays $500,000 to acquire 40% of the voting stock of Universal Technologies, Inc.
on May 5, 2019. This investment will be classified as a(n) ________.
A) trading equity investment
B) available-for-sale equity investment
C) significant influence equity investment
D) held-to-maturity equity investment
63) Provide definitions for the following types of investments.
a. Held-to-maturity debt investment
b. Significant influence equity investment
c. Trading debt investment
64) Provide definitions for the following types of investments.
a. Controlling interest equity investment
b. Available-for-sale debt investment
c. No significant influence equity investment
65) For each of the following scenarios, state the type of investment:
1. Available-for-sale debt investment
2. No significant influence equity investment
3. Trading debt investment
4. Significant influence equity investment
5. Held-to-maturity debt investment
6. Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a. _____ Arnold Corp. owns a debt security in Brady Corp. Arnold plans on holding the debt for thirty
days.
b. _____ Maxwell Inc. owns 70% of the voting stock of Russell Corp.
c. _____ Millie Inc. owns a debt security of Auntie Inc. Millie intends to and has the ability to hold the
debt security until maturity.
66) For each of the following scenarios, state the type of investment:
1. Available-for-sale debt investment
2. No significant influence equity investment
3. Trading debt investment
4. Significant influence equity investment
5. Held-to-maturity debt investment
6. Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a. _____ Golden Corp. owns a debt security in Yellow Corp. Golden plans on selling the debt after one
year.
b. _____ Horizon Inc. owns 18% of the voting stock of Sunset Corp. Horizon does not have the ability to
participate in the decisions of Sunset.
c. _____ Eastern Inc. owns 32% of Western’s voting stock. Eastern has the ability to exert influence over
Western.
1) When a company acquires a long-term bond investment, by paying cash, total assets remain
unchanged.
2) Investments in debt securities are recorded at cost. Brokerage fees paid are treated as expenses.