A general journal j1 date account title debit credit

a.
General Journal
J1
Date Account Title Debit
Credit
b. ________________________________________________________________________
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Chapter 17: Investments
17-25
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c.
General Journal
J1
Date Account Title Debit
Credit
SOLUTIONS TO REVIEW QUESTIONS AND EXERCISES
TRUE-FALSE
1. (T)
2. (F) Available-for-sale securities are securities not classified as held-to-maturity or trading
securities. Trading securities are securities bought and held primarily for sale in the
near term to generate income on short-term price differences.
3. (F) Only debt securities can be classified as held-to-maturity because, by definition, equity
securities have no maturity date.
4. (F) Held-to-maturity securities are accounted for at amortized cost, not fair value.
Amortized cost is the acquisition cost adjusted for the amortization of discount or
premium, if appropriate.
5. (F) Unrealized gains and losses related to changes in the fair value of available-for-sale
debt securities are recorded in an unrealized holding gain or loss account which is
reported as other comprehensive income and as a separate component of stockholders’
equity until realized.
6. (T)

17-26
Student Study Guide for Intermediate Accounting, 15th Edition
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7. (T)
8. (F) Discounts or premiums are not amortized for trading securities.
9. (F) If one corporation acquires an interest of less than 20% in another corporation, that
investor is generally deemed to have little influence over the investee and will account
for the investment under the fair value method.
10. (F) The fair value method requires that companies classify equity securities at acquisition
as available-for-sale securities or trading securities. Because equity securities have no
maturity date, they cannot be classified as held-to-maturity.
11. (T)
12. (T)
13. (T)
14. (T)
15. (T)
16. (T)
17. (F) If an investor’s level of influence or ownership falls below that necessary for continued
use of the equity method, a change must be made to the fair value method. If the
investor’s level of influence or ownership increases to 50% or more, a change to the
consolidated method must be made.
18. (F) The fair value option is generally available only at the time a company first purchases
the financial asset or incurs a financial liability.
19. (T)
*20. (T)
*21. (F) Derivatives should be reported in the balance sheet at fair value.
*22. (F) Gains and losses on derivatives resulting from the speculation of derivatives should be
recognized immediately in income.
*23. (F) A call option increases in value when the underlying asset also increases in value. A
put option increases in value when the underlying asset decreases in value.
*24. (T)
*25. (F) Embedded derivatives should be bifurcated from the host security and recorded
separately as a derivative instrument.

Chapter 17: Investments
17-27
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MULTIPLE CHOICE
1. (B) Debt securities bought and held primarily for sale in the near term to generate income on
short-term price differences are trading debt securities. (A) Debt securities that the
enterprise has the positive intent and ability to hold to maturity are held-to-maturity
securities. (C) Debt securities not classified as held-to-maturity or trading securities are
available-for-sale securities.