Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

T purchased a $100{,}000 single premium bond as an investment. Which of the following best describes how this investment should be initially recorded on the balance sheet under U.S. GAAP?

At its cost of $100{,}000 as an asset

At its fair market value at the end of the reporting period

As a liability for $100{,}000

Not recorded until the bond matures

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Verified step by step guidance

Understand the nature of the investment: A single premium bond is a financial instrument purchased for $100,000. It represents an asset for the purchaser, as it is expected to generate future economic benefits.

Review U.S. GAAP guidelines for initial recognition of investments: Under U.S. GAAP, investments are typically recorded at their acquisition cost when initially recognized on the balance sheet. This cost includes the purchase price and any directly attributable transaction costs.

Determine the classification of the bond: Since the bond is purchased as an investment, it should be classified as an asset on the balance sheet. It is not a liability because it does not represent an obligation to pay but rather a resource owned by the entity.

Consider fair market value adjustments: While fair market value may be relevant for subsequent measurement (e.g., at the end of the reporting period for certain types of investments), the initial recording is based on the acquisition cost, not fair market value.

Conclude the correct treatment: The bond should be recorded at its cost of $100,000 as an asset on the balance sheet at the time of purchase, in accordance with U.S. GAAP.