Multiple Choice
Your firm is contemplating the purchase of a new investment security. Which of the following would most likely be classified as a held-to-maturity investment under U.S. GAAP?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Presented below is information related to equipment owned by Suarez Company. Which of the following would be classified as an investment in securities rather than property, plant, and equipment on the balance sheet?
A
Office equipment used by Suarez Company employees
B
Machinery used in the company's manufacturing operations
C
A delivery truck used for company deliveries
D
Shares of stock in another corporation held for potential appreciation
Verified step by step guidance1
Step 1: Understand the classification of assets on the balance sheet. Assets are typically categorized into current assets, non-current assets, and investments. Property, plant, and equipment (PP&E) are tangible assets used in the operations of the business, while investments in securities are financial assets held for potential appreciation or income generation.
Step 2: Analyze the items provided in the problem. Office equipment, machinery, and delivery trucks are tangible assets used in the operations of Suarez Company. These are classified as property, plant, and equipment (PP&E) because they are directly involved in the company's operations.
Step 3: Consider the nature of shares of stock in another corporation. Shares of stock are financial instruments and are not used in the operations of Suarez Company. Instead, they are held for potential appreciation or income generation, which makes them an investment in securities.
Step 4: Differentiate between tangible and intangible assets. Tangible assets like office equipment, machinery, and delivery trucks have physical substance and are used in operations, while intangible or financial assets like shares of stock are held for investment purposes.
Step 5: Conclude that shares of stock in another corporation are classified as an investment in securities on the balance sheet, rather than property, plant, and equipment, because they are not used in the company's operations but are held for potential financial gain.
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