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

When purchasing an investment security through a short sale, which of the following statements is correct?

The investor is not required to return the borrowed securities to the lender.

The investor immediately owns the security and is entitled to dividends.

The investor sells borrowed securities with the intention of buying them back at a lower price.

The investor purchases the security at a discount directly from the issuing company.

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Verified step by step guidance

Understand the concept of a short sale: A short sale occurs when an investor borrows securities (such as stocks) from a lender and sells them on the open market, with the intention of repurchasing them later at a lower price to return to the lender.

Clarify the investor's obligations: In a short sale, the investor is required to return the borrowed securities to the lender. This is a key aspect of the transaction.

Explain ownership and dividends: The investor does not own the securities during a short sale and is not entitled to dividends or other benefits associated with ownership.

Highlight the intention behind the transaction: The primary goal of a short sale is to profit from a decline in the security's price. The investor sells the borrowed securities at a higher price and aims to repurchase them at a lower price later.

Address the incorrect statement: The investor does not purchase the security directly from the issuing company at a discount. Instead, the securities are borrowed from another party, typically facilitated by a brokerage firm.