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Q17-4Q

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Intermediate Accounting (Kieso)
Found in: Page 552

Short Answer

Question: Identify and explain the three types of classifications for investments in debt securities.

Answer:

Three types of debt security are hold-to-maturity, trading securities, and available-for-sale.

See the step by step solution

Step by Step Solution

Step 1: Definition of a debt security

Debt securities are securities issued by the company that fulfill its cash need. In debt securities, the issuer promises to pay the amount on the date of maturity along with interest.

Step 2: Types of Investment in debt securities

Three types of investment in debt securities:

  1. Hold-to-Maturity: In this type of investment, the purpose is to hold the securities till the date of maturity. Generally, this type of investment is done for the long-term period.

2. Trading: It is the type of investment in which the investment is made to trade these securities. In this, the investor holds the security for the short-term and sells it when the price of security increases.

3. Available-for-Sale: The securities not included in the two other types of investment are included here. In this, the investor sells the securities after some years but before the maturity of the securities.

Most popular questions for Business-studies Textbooks

(Depreciation for Fractional Periods) On March 10, 2019, Lost World Company sells equipment that it purchased for $192,000 on August 20, 2012. It was originally estimated that the equipment would have a life of 12 years and a salvage value of $16,800 at the end of that time, and depreciation has been computed on that basis. The company uses the straight line method of depreciation.

Instructions

  1. (a) Compute the depreciation charge on this equipment for 2012, for 2019, and the total charge for the period from 2013 to 2018, inclusive, under each of the six following assumptions with respect to partial periods.
    1. Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for base and record depreciation through March 9, 2019.)
    2. Depreciation is computed for the full year on the January 1 balance in the asset account.
    3. Depreciation is computed for the full year on the December 31 balance in the asset account.
    4. Depreciation for one-half year is charged on plant assets acquired or disposed of during the year.
    5. Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal.
    6. Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.)
  2. (b) Briefly evaluate the methods above, considering them from the point of view of basic accounting theory as well as simplicity of application.
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