Financial and Managerial Accounting Study Set 1

Business

Quiz 13 :
Investments and Fair Value Accounting

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Quiz 13 :
Investments and Fair Value Accounting

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A business may invest in another company's stock to earn interest revenue, receive dividends, realize gains from increase sin the market price of the securities, to develop a supplier relationship, or for strategic reasons.

Entries for Investment in bonds, Interest, and sale of bonds: a. Entry for purchase of bonds: img Bonds are financial assets. The company is receiving bonds, and paying cash. We debited the bonds, since they are coming into the business. We are crediting the cash since cash is going out. b. Entry for interest revenue: img The company is receiving cash- so cash is debited. Interest is an income hence it is credited. c. Entry for sale of bonds: img Company is receiving cash, hence it is debited. Loss should be debited, hence loss on sale of bonds is debited. Bonds are surrendering, hence they are credited. d. Entry for accrued interest revenue: img Interest revenue is an income, hence it is credited. Accrued interest is debited.

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