Question

1-If the Fair Value Adjustment minus Trading account for trading debt investments has a debit balance, it is 2-A preferred stock is an example of a debt security. • True False 3-Equity securities, in which the investor lacks the ability to participate in the decisions of the investee company, are initially accounted for at the lower-of-cost-or-market value. True . False 4- are equity securities in which the investor owns between 20% and 50% of the investee's voting stock. 5-Securities are represented by a certificate and are commonly traded on an exchange. • True False 6-When a company receives interest revenue on a bond investment, total stockholders' equity remains unchanged. • • True False 7-When a company collects the face value of a bond investment at maturity, total assets increase. • • True False 8-Creditors invest in a company and hope to receive a return on their investment. True False

Answer 1

1. If the fair value adjustment minus trading account for trading debt investments has a debit balance, it is added to the trading debt investment account to calculate the carrying value. A debit balance from the difference of fair value adjustment and trading debt investment account, increases the fair value of the security. 2. The statement is False. A preferred stock is a mix of equity and debt. It is neither completely debt nor completely equity. It yields a fixed percentage of return like fixed percentage interest in debt. But it is a dividend which is given to the shareholders. 3. The statement is False Equity securities, in which the investor lacks the ability to participate in the decisions of investee company is when it holds less than 20% of the voting shares. Such securities are valued at the fair value. 4 When the investor holds between 20% to 50% of voting stock in a company, such securities are called as Significant influence equity securities. 5. The statement is True The certificates issued for the securities are known as share certificates.

6. The statement is False Interest revenue on a bond investment increases the net income that is added to the shareholders' equity. Hence, it can be said that interest revenue increases the shareholders' equity. 7. The statement is False As the redemption takes place at face value, there will be no effect on the asset. 8. The statement is False Creditors are not investors. They only provide loan to a company and in return they get a fixed percentage of interest.