Accounting for Investments: Stocks, Bonds, and DerivativesInvestments in stocks, bonds, and derivatives are common financial instruments heldby companies and individuals for various purposes, including generating returns anddiversifying investment portfolios. Accounting for these investments involvesrecording them on the balance sheet at fair value and recognizing any changes invalue in the income statement.1. Stocks (Equity Investments): Stocks represent ownership interests in a company.When a company purchases stocks of another company as an investment, it recordsthe investment on its balance sheet as an asset at fair value. Changes in the fair valueof the stocks are recorded in the income statement as gains or losses.2. Bonds (Debt Investments): Bonds are debt securities issued by governments,municipalities, or corporations to raise capital. When a company invests in bonds, itrecords the investment on its balance sheet as an asset at fair value. The interestincome earned from bonds is recognized in the income statement, and any changesin the fair value of the bonds are recorded as gains or losses.3. Derivatives: Derivatives are financial contracts whose value is derived from anunderlying asset, index, or reference rate. Common types of derivatives includeoptions, futures, and swaps. Accounting for derivatives involves recording them onthe balance sheet at fair value, with changes in fair value recognized in the incomestatement as gains or losses.Objective Type Question:Which financial instrument represents ownership interests in a company?A) BondsB) DerivativesC) StocksD) Commodities

A financial instrument is a tradable asset that represents a legal agreement between two parties. It…

Answered: Which financial instrument represents…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter14: Corporation Accounting

Section: Chapter Questions

Problem 19MC: Owners equity represents which of the following? A. the amount of funding the company has from...

See similar textbooks

Similar questions

__________ securities are investments in preferred or common stock that represent ownership in a company. a.Equity b.Debt c.Market d.Investment
When a company pays interest on preferred stock, that activity is usually classified as: a. operating b. financing c. investing
For investments in equity securities, which will result in recording income based on the income of the investee? Select one: a. Held-to-maturity classification b. Trading classification O C. Available-for-sale classification O d. Equity method of accounting
One of the primary reasons for investing in equity securities includes a. Receiving dividend payments. b. Acquiring debt of competing companies. c. Earning interest revenue. d. Deducting dividend payments for tax purposes.
When a business has Available-for-Sale Securities, the account Unrealized Loss on Available-for-Sale Investments should be included in the: Statement of Retained Earnings Income statement Balance sheet as an addition to Long-Term Investments in Stock Balance sheet as a deduction in Stockholders' Equity
Which of the following is NOT correct regarding trading securities * a. Unrealized holding gains or losses are reported in profit or loss b. Share in profit of the investee increases carrying value of the investment c. These are classified as current assets. d. Cash dividends shall be recognized as dividend income
The share capital of a company may consist of: Select one: a. Loans from banks. b. Ordinary or preference shares issued by the company either fully paid or partly paid. c. Debentures issued by the company. d. Secured and unsecured notes issued by the company.
Hiram Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received from these investments subsequent to the date of investment?
A debenture is ABU DA equity capital of the company another name for share capital a loan convertible into shares in the future a loan usually secured on the business' assets
Long-term investments that involve the purchase of a significant portion of the stock of another company may be held for a strategic purpose, such as O a. the receipt of dividends O b. the receipt of interest revenue O c. the gains from the increase in market value O d. expansion into new markets
For accounting purposes, the method used to account for investments in common stock is determined by: a. the amount paid for the stock by the investor b. whether the acquisition of the stock by the investor was "friendly" or "hostile" c. the extent of an investor's influence over the operating and financial affairs of the investee d. whether the stock has paid dividends in past years
A company’s publicly listed shares: a. Can be traded on any share market around the world b. Represent an ownership claim on the company’s real assets (net of liabilities) c. Are guaranteed to provide a dividend cash-flow d. All of the above e. None of the above

SEE MORE QUESTIONS

Recommended textbooks for you

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS

Which financial instrument represents ownership interests in a company? A) Bonds B) Derivatives C) Stocks D) Commodities