The correct option, the option which indicates the correct type of investment

Question

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Answer 1

Question

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

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Answer 2

Question

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

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Answer 3

Question

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

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Answer 4

Question

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

Answer 6

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.

Conclusion

Thus, option (c) is the correct answer.

Answer 7

Chapter 8, Problem 1QC

To determine

To find: The correct option, the option which indicates the correct type of investment

Answer 8

Expert Solution & Answer

Explanation of Solution

Available-for-sale securities (AFSS): These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Justification for correct answer: C’s investment in M’s Stock is less than 2%, so, the investment cannot be equity-method investment. C’s investment in M’s Stock is intended to be held for 3 years and sell off. Hence, it is classified as available-for-sale investment. Hence, option (c) is correct.

Justification for incorrect answers:

Option (a) is incorrect answer because trading securities are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Option (b) is incorrect answer because equity investments are stock instruments which claim significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Option (d) is incorrect answer because consolidation is the type of investment which claims significant control and ownership of above 50% in the outstanding stock of the investee company.