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

You invest \$4,000 in equity securities. According to U.S. GAAP, how should this investment generally be reported on the balance sheet at the end of the reporting period?

At historical cost, with no adjustments for changes in fair value

At lower of cost or market value

At fair value, with unrealized gains and losses recognized in net income

At amortized cost, with unrealized gains and losses recognized in other comprehensive income

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Verified step by step guidance

Understand the nature of the investment: Equity securities are financial instruments that represent ownership in a company, such as stocks. Under U.S. GAAP, the reporting of equity securities depends on their classification and the intent of the investment.

Review the reporting requirements for equity securities: U.S. GAAP generally requires equity securities to be reported at fair value. This means the value of the securities is adjusted to reflect their current market price at the end of the reporting period.

Consider the treatment of unrealized gains and losses: For equity securities, unrealized gains and losses (changes in fair value that have not yet been realized through a sale) are recognized in net income. This impacts the income statement and not other comprehensive income.

Exclude other reporting methods: Historical cost, lower of cost or market value, and amortized cost are not applicable for equity securities under U.S. GAAP. These methods are used for other types of investments, such as debt securities or inventory.

Summarize the reporting approach: Equity securities are reported at fair value on the balance sheet, with unrealized gains and losses recognized in net income, ensuring compliance with U.S. GAAP standards.