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?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Which of the following are debt contracts that are issued most frequently by governments and corporations?
A
Bonds
B
Mutual funds
C
Common stocks
D
Preferred shares
Verified step by step guidance1
Understand the concept of debt contracts: Debt contracts are agreements where one party borrows money from another and agrees to repay it with interest over time. These are typically issued by governments and corporations to raise funds.
Identify the characteristics of bonds: Bonds are a type of debt contract where the issuer (government or corporation) promises to pay the bondholder a fixed interest rate periodically and repay the principal amount at maturity. Bonds are the most common form of debt contracts.
Differentiate bonds from other financial instruments: Mutual funds, common stocks, and preferred shares are equity or investment instruments, not debt contracts. Mutual funds pool money to invest in various assets, common stocks represent ownership in a company, and preferred shares are a hybrid of equity and debt but do not function as traditional debt contracts.
Recognize why governments and corporations issue bonds: Bonds are issued to finance projects, operations, or manage debt. They are preferred due to their structured repayment terms and ability to attract investors seeking fixed income.
Conclude that bonds are the correct answer: Based on the characteristics and purpose of debt contracts, bonds are the most frequently issued by governments and corporations to raise funds.
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