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

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which of the following statements about the accounting for debt investments is true?

Debt investments are reported as receivables on the balance sheet.

Unrealized gains and losses on all debt investments are reported in the income statement.

Interest revenue from debt investments is recognized when earned, regardless of when cash is received.

Debt investments are always classified as current assets.

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Verified step by step guidance

Understand the nature of debt investments: Debt investments are financial instruments where an entity invests in debt securities issued by another entity, such as bonds or notes. These investments generate interest revenue over time.

Clarify the reporting of debt investments: Debt investments are not reported as receivables on the balance sheet. Instead, they are classified as either current or non-current assets based on the expected holding period.

Examine unrealized gains and losses: Unrealized gains and losses on debt investments are not always reported in the income statement. Their treatment depends on the classification of the debt investment (e.g., held-to-maturity, available-for-sale, or trading securities). For example, unrealized gains and losses for available-for-sale securities are reported in other comprehensive income, not the income statement.

Analyze interest revenue recognition: Interest revenue from debt investments is recognized when earned, regardless of when cash is received. This follows the accrual basis of accounting, which records revenue when it is earned rather than when payment is received.

Evaluate asset classification: Debt investments are not always classified as current assets. Their classification depends on the intent and ability of the entity to hold the investment. If the entity plans to hold the investment for more than one year, it is classified as a non-current asset.