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

In the context of investments in securities, if you are looking to use 'good debt' to build equity, which of the following strategies best describes this approach?

Using personal savings exclusively to invest in securities, avoiding any form of borrowing.

Using borrowed funds to purchase appreciating assets, such as stocks or real estate, with the expectation that returns will exceed the cost of debt.

Paying off all existing debts before making any investments in securities.

Investing only in risk-free government bonds to avoid any exposure to debt.

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Verified step by step guidance

Step 1: Understand the concept of 'good debt' in financial accounting. Good debt refers to borrowing funds to invest in assets that are expected to appreciate in value or generate returns higher than the cost of borrowing. This is a strategic approach to building equity.

Step 2: Analyze the given options to identify which strategy aligns with the concept of using 'good debt' to build equity. Focus on the expectation that returns from the investment will exceed the cost of debt.

Step 3: Evaluate the first option, 'Using personal savings exclusively to invest in securities, avoiding any form of borrowing.' This does not involve debt, so it does not align with the concept of 'good debt.'

Step 4: Evaluate the second option, 'Using borrowed funds to purchase appreciating assets, such as stocks or real estate, with the expectation that returns will exceed the cost of debt.' This directly aligns with the concept of 'good debt' as it involves borrowing to invest in assets expected to appreciate.

Step 5: Evaluate the remaining options, 'Paying off all existing debts before making any investments in securities' and 'Investing only in risk-free government bonds to avoid any exposure to debt.' Neither of these strategies involves using debt to build equity, so they do not align with the concept of 'good debt.'