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Horngren'S Financial And Managerial Accounting
Found in: Page 566

Short Answer

Briefly describe the specific types of debt and equity securities.

Debt securities include Trading debt investment, Held-to-maturity debt investment, and available for sale debt investment.

Equity Securities: No significant influence equity investment, significant influence equity investment, and controlling interest equity investment.

See the step by step solution

Step by Step Solution

Step 1: Definition of Controlling Interest

Voting stock refers to the shares that provide the owner with the right to vote in the general meeting of the shareholders and board of directors. Such investor has the ability to influence decisions.

Step 2: Types of Debt Securities

  1. Trading debt securities: The debt securities acquired for selling in a very short period, such as within a week, days, or months.
  2. Held-to-Maturity: The securities acquired hold them up to their maturity, or the investor can hold them up to maturity.
  3. Available for sale debt investment: The debt investments that are not included in the trading and held-to-maturity securities are included in the available for sale debt investment. These are reported in the current assets because the business entity expects that it will get sold within one year.

Step 3: Types of Equity Securities

  1. No significant influence on equity investment: The equity investment, which is less than 20% of the voting stock of the investee company and does not allow the investor to participate in the business decisions, is known as having no significant influence on equity investment.
  2. Significant influence equity investment: The equity securities that provide the investor with the ability to influence the decision of the investee company are known as significant influence equity investment. Under such investment, the investor has acquired 20% to 50% of voting stock.
  3. Controlling interest equity investment: The equity investment in which the investor has acquired more than 50% of the voting stock of the investee company.

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