Chapter 12, Problem 12.27E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company FI’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To Journalize: The purchase of common shares of Company NS, by Company FI.

3.

To determine

To Indicate: The effect of this investment on 2018 income of Company FI.