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Chapter 11: Q17-4Q (page 552)

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

Short Answer

Expert verified

Answer:

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

Step by step solution

01

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.

02

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.

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Most popular questions from this chapter

Francis Corporation purchased an asset at a cost of \(50,000 on March 1, 2017. The asset has a useful life of 8 years and a salvage value of \)4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2017–2022.

Shumway Oil uses successful-efforts accounting and also provides full-cost results as well. Under fullcost, Shumway Oil would have reported retained earnings of \(42 million and net income of \)4 million. Under successful effort, retained earnings were \(29 million, and net income was \)3 million. Explain the difference between full-costing and successful-efforts accounting.

(Book vs. Tax (MACRS) Depreciation) Shimei Inc. purchased computer equipment on March 1, 2017, for \(31,000. The computer equipment has a useful life of 10 years and a salvage value of \)1,000. For tax purposes, the MACRS class life is 5 years.

Instructions

a. Assuming that the company uses the straight-line method for book and tax purposes, what is the depreciation expense reported in

  1. the financial statements for 2017 and
  2. the tax return for 2017?

b. Assuming that the company uses the double-declining-balance method for both book and tax purposes, what is the depreciation expense reported in

  1. the financial statements for 2017 and
  2. the tax return for 2017?

c. Why is depreciation for tax purposes different from depreciation for book purposes even if the company uses the same depreciation method to compute them both?

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?

(Depletion Computations—Mining) Alcide Mining Company purchased land on February 1, 2017, at a cost of \(1,190,000. It is estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at \)90,000. It believes it will be able to sell the property afterwards for \(100,000. It incurred developmental costs of \)200,000 before it was able to do any mining. In 2017, resources removed totaled 30,000 tons. The company sold 22,000 tons.

Instructions

Compute the following information for 2017.

  1. Per unit material cost.
  2. Total material cost of December 31, 2017, inventory.
  3. Total material cost in cost of goods sold at December 31, 2017.
See all solutions

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