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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

When selling life annuities as an investment, which of the following is most relevant for financial accounting purposes?

Ignoring the present value of future payments

Expensing all proceeds immediately

Recognizing revenue over the expected life of the annuitant

Recording the entire premium as revenue at the time of sale

Previous problemNext problem

Verified step by step guidance

Understand the concept of life annuities: Life annuities are financial products where an individual pays a premium upfront in exchange for periodic payments over their lifetime. For financial accounting purposes, the revenue recognition principle is key.

Review the revenue recognition principle: Revenue should be recognized when it is earned and realizable. In the case of life annuities, the premium paid upfront represents a liability because the company has an obligation to make future payments to the annuitant.

Analyze the options provided: Ignoring the present value of future payments would violate the matching principle, expensing all proceeds immediately would not align with the accrual basis of accounting, and recording the entire premium as revenue at the time of sale would overstate revenue and ignore the obligation to make future payments.

Focus on the correct approach: Recognizing revenue over the expected life of the annuitant aligns with the revenue recognition principle. The premium received is initially recorded as a liability (unearned revenue) and gradually recognized as revenue as the company fulfills its obligation by making payments.

Apply the concept: To implement this, the company would use actuarial estimates to determine the expected life of the annuitant and allocate the premium revenue proportionally over that period, ensuring compliance with financial accounting standards.