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

Your firm is contemplating the purchase of a new investment security. Which of the following would most likely be classified as a held-to-maturity investment under U.S. GAAP?

Common stock purchased for short-term trading gains

A corporate bond that the firm intends and is able to hold until maturity

A government bond that the firm may sell if interest rates change

Preferred stock acquired for long-term strategic purposes

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Verified step by step guidance

Understand the classification of investments under U.S. GAAP. Investments are categorized as held-to-maturity, available-for-sale, or trading securities based on the firm's intent and ability to hold the investment.

Recognize that held-to-maturity investments are debt securities (e.g., corporate bonds, government bonds) that the firm has both the intent and ability to hold until their maturity date. Equity securities, such as common or preferred stock, cannot be classified as held-to-maturity because they do not have a maturity date.

Evaluate the options provided in the problem. Common stock purchased for short-term trading gains would be classified as trading securities, not held-to-maturity. Preferred stock acquired for long-term strategic purposes would also not qualify as held-to-maturity because it is an equity security.

Analyze the government bond option. While it is a debt security, the firm's intent to sell it if interest rates change indicates that it does not meet the criteria for held-to-maturity classification. This would likely be classified as available-for-sale instead.

Conclude that the corporate bond, which the firm intends and is able to hold until maturity, meets the criteria for held-to-maturity classification under U.S. GAAP.