Chapter 10: 1TI (page 549)

Match the key term to the scenario.
1. Available-for-sale debt investments.
a. Jane owns 53% of Richard’s Roses’s voting stock.
2. Controlling interest equity investments.
b. Joe owns debt security in Bones, Inc. and intends to hold it until maturity.
3. Trading debt investments.
c. Jeannie owns a debt security in Cricket, Inc. and plans on selling the debt after one year.
4. Held-to-maturity debt investments.
d. Jimenez owns 5% of Delgado, Inc.’s voting stock but does not have the ability to participate in the decisions of Delgado, Inc.
5. Significant influence on equity investments.
e. Jacob owns 24% of Pay, Inc.’s voting stock and has the ability to exert influence over Pay, Inc.
6. No significant influence on equity investments.
f. Jim owns a debt security in Tag, Inc.’s and plans on holding the debt for only a week.

Short Answer

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a. Jane owns 53% of Richard’s Roses’s voting stock.	2. Controlling interest equity investment.
b. Joe owns a debt security in Bones, Inc. and intends to hold it until maturity.	4. Held to maturity debt investment.
c. Jeannie owns a debt security in Cricket, Inc. and plans on selling the debt after one year.	3. Trading debt investment.
d. Jimenez owns 5% of Delgado, Inc.’s voting stock but does not have the ability to participate in the decisions of Delgado, Inc.	6. No significant influence on equity investments.
e. Jacob owns 24% of Pay, Inc.’s voting stock and has the ability to exert influence over Pay, Inc.	5. Significant influence on equity investments.
f. Jim owns a debt security in Tag, Inc.’s and plans on holding the debt for only a week.	1. Available for sale debt investment.

Step by step solution

Definition of Debt Security

Debt Security can be defined as the instrument issued by the borrower to generate cash for the business entity. Such instruments also carry an interest rate known as the coupon rate.

Matching Key Terms

Controlling interest equity investment includes the investment made in the business entity’s equity capital, equal to or more than 51% of total equity.
When the debt is held up to its maturity date, such debts are known as hold to maturity debt.
Debt investments acquired with a view of selling after one year are considered a trading investment in the debt.
Debt held to generate gain due to a rise in price within a short period is known as available for sale debt securities.
If the percentage of equity held is between 20 to 50% of the outstanding stock, it will be considered a significant influence on equity investment.

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Definition of Debt Security

Matching Key Terms

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1. Available-for-sale debt investments.	a. Jane owns 53% of Richard’s Roses’s voting stock.
2. Controlling interest equity investments.	b. Joe owns debt security in Bones, Inc. and intends to hold it until maturity.
3. Trading debt investments.	c. Jeannie owns a debt security in Cricket, Inc. and plans on selling the debt after one year.
4. Held-to-maturity debt investments.	d. Jimenez owns 5% of Delgado, Inc.’s voting stock but does not have the ability to participate in the decisions of Delgado, Inc.
5. Significant influence on equity investments.	e. Jacob owns 24% of Pay, Inc.’s voting stock and has the ability to exert influence over Pay, Inc.
6. No significant influence on equity investments.	f. Jim owns a debt security in Tag, Inc.’s and plans on holding the debt for only a week.