Match the following terms to their correct definition:
-Equity or debt investments that management intends to sell in the near term, typically within a single month
A)equity security
B)debt security
C)passive
D)significant influence
E)control
F)parent
G)subsidiary
H)trading securities
I)available-for-sale securities
J)held-to-maturity securities
K)amortized cost method
L)fair value method
M)unrealized gains and losses
N)equity method
O)consolidation worksheet
P)minority interest
Q)business combination
R)goodwill

Question

Quizplus · Accepted Answer

Trading securities are equity or debt investments that management intends to sell in the near term, typically within a single month.

Answer: I 
 Available-for-sale securities are investments that are not intended to be held until maturity or sold in the near term. They are reported at fair value on the balance sheet, and unrealized gains and losses are reported as a separate component of equity.

Answer: J 
 Held-to-maturity securities are debt investments that management intends and has the ability to hold until maturity. These securities are reported at amortized cost on the balance sheet.

Answer: K 
 The amortized cost method is used to account for held-to-maturity securities. This method involves tracking the cost of the investment and the interest income received over time, rather than reporting the investment at fair value.

Answer: L 
 The fair value method is used to account for trading and available-for-sale securities. This method involves reporting the investment at its fair value, with any unrealized gains or losses reported on the balance sheet.

Answer: N 
 The equity method is used to account for investments in which the investor has significant influence over the investee. Under this method, the investor reports its share of the investee's net income or loss on the income statement and its share of the investee's assets and liabilities on the balance sheet.

Answer: G 
 A subsidiary is a company that is controlled by another company, known as the parent. To be considered a subsidiary, the parent must have control over the investee, typically meaning it owns more than 50% of the voting stock.

Answer: O 
 A consolidation worksheet is used to combine the financial information of a parent company and its subsidiaries. This worksheet is used to eliminate intercompany transactions and to calculate minority interest, which represents the portion of a subsidiary's equity that is not owned by the parent.

Answer: Q 
 A business combination occurs when one entity acquires control over another entity. This can take place through an asset purchase, a stock purchase, or a merger.

Answer: R 
 Goodwill is an intangible asset that arises when one company acquires another company for a price that is higher than the fair value of the acquired company's assets and liabilities. It represents the premium paid for the company's reputation, customer base, and other intangible factors.

Answer: A, B 
 Equity securities are ownership stakes in a company, while debt securities represent loans made to a company. The choice between A and B would depend on the specific security being discussed.

Answer: C 
 Passive refers to an investment in which the investor does not have significant influence over the investee. This would typically include investments in publicly traded companies where the investor owns less than 20% of the voting stock.

Answer: D 
 Significant influence refers to an investment in which the investor has the ability to influence the operating and financial policies of the investee, typically through ownership of 20-50% of the voting stock.

Match the Following Terms to Their Correct Definition