Chapter C, Problem 7E

To determine

Procedure for debiting and crediting an account:

• Increase in assets account, increase in expenses account, and decrease in liabilities account should be debited.

• Decrease in assets account, increase in revenue account, and increase in liabilities account should be credited.

All transactions affect the accounting equation that is displayed below. The accounting equation should always remain in balance at the time of recording a business transaction:

$\boxed{\text{Asset = Liabilities + Stockholders' equity}}$

Investment:

Investment can be defined as an asset or item obtained with the objective to generate income or appreciation. It can also be referred to as the purchase of goods that are to be used on a future date to create wealth.

Financial statement:

Financial statement is a complete record of the financial transactions that takes place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues, and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements, income statement, retained earnings statement, balance sheet, and cash flow statement.

To prepare: The adjusting entry to report the short-term investments at fair value.