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

Laura is considering new project commitments and wants to classify her company's purchase of bonds issued by another corporation. Under financial accounting standards, how should this investment in bonds generally be classified on the balance sheet?

As a prepaid expense

As an intangible asset

As inventory

As an investment in debt securities

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Verified step by step guidance

Understand the nature of the bonds: Bonds issued by another corporation represent a financial instrument that provides the holder with a claim to future cash flows, typically interest payments and the repayment of principal.

Review the classification options: Prepaid expenses are payments made for goods or services to be received in the future, intangible assets are non-physical assets like patents or trademarks, and inventory refers to goods held for sale. Bonds do not fit into any of these categories.

Learn the correct classification: Investments in bonds are considered 'investment in debt securities' under financial accounting standards. This classification reflects the company's intention to earn returns from the bonds, either through interest income or capital gains.

Determine the balance sheet placement: Investments in debt securities are typically classified as either current or non-current assets on the balance sheet, depending on the company's intention to hold the bonds for the short term or long term.

Understand the implications: Proper classification ensures accurate financial reporting and compliance with accounting standards, providing stakeholders with a clear understanding of the company's financial position.