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

T purchased a $100{,}000$ single-premium bond as an investment. Which of the following best describes how this investment should be initially recorded on the balance sheet under U.S. GAAP?

As a liability at fair value

As an intangible asset at amortized cost

As an investment in debt securities at cost

As revenue in the income statement

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Verified step by step guidance

Understand the nature of the investment: The problem states that T purchased a single-premium bond as an investment. Bonds are typically classified as debt securities under U.S. GAAP.

Determine the appropriate classification: Under U.S. GAAP, investments in debt securities are initially recorded based on their classification, such as held-to-maturity, available-for-sale, or trading securities. The classification determines how the investment is measured and reported.

Focus on initial recording: The problem asks how the investment should be initially recorded. For debt securities, initial recording is typically at cost, which represents the amount paid to acquire the investment.

Eliminate incorrect options: Review the provided options and eliminate those that do not align with U.S. GAAP. For example, recording the bond as a liability or intangible asset is incorrect because it is an investment, not a liability or intangible asset. Recording it as revenue in the income statement is also incorrect because revenue recognition pertains to earned income, not investments.

Select the correct answer: Based on U.S. GAAP, the bond should be initially recorded as an investment in debt securities at cost, as this reflects the acquisition cost of the investment.