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

Under the topic of investments in securities, which of the following best describes how the purchase of a new machine for a warehouse on January 1 should be recorded in the company's financial statements?

It should be recorded as a prepaid expense under current assets.

It should be recorded as an investment in securities under current assets.

It should be expensed immediately on the income statement.

It should be recorded as a capital expenditure and recognized as property, plant, and equipment (PPE) on the balance sheet.

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Verified step by step guidance

Understand the nature of the transaction: The purchase of a new machine for a warehouse is a long-term investment in physical assets, not a short-term expense or investment in securities.

Review the concept of capital expenditures: Capital expenditures refer to funds used by a company to acquire, upgrade, or maintain physical assets such as property, buildings, or equipment. These are recorded as assets rather than expenses because they provide future economic benefits.

Determine the appropriate classification: Since the machine is a physical asset that will be used for operations over multiple accounting periods, it should be classified as property, plant, and equipment (PPE) on the balance sheet.

Understand the accounting treatment: The cost of the machine will initially be recorded as an asset under PPE. Over time, its value will be depreciated to reflect wear and tear and usage, with depreciation expense recognized on the income statement.

Ensure proper financial statement presentation: On the balance sheet, the machine will appear under non-current assets as part of PPE. Depreciation will be recorded periodically, reducing the asset's book value and impacting the income statement through depreciation expense.