Question

1. Short−term ​investments:

A.are debt securities

B.represents Accounts Receivable and notes receivable on the balance sheet

C.may be classified as either debt or equity securities

D.are equity securities

2.The journal entry to record the sale of an investment includes a loss on sale of investment for​ $500. The income statement will​ reflect:

A.a decrease in net sales of​ $500

B.other​ income/loss of​ $500

C.​nothing, since the entry impacts only asset accounts

D.an extraordinary loss of​ $500

3.Under the equity method of accounting for​ investments, dividends paid by the investee are recorded by the investor​ as:

A.a credit to the Investment account of the investor company

B.a credit to Dividend Revenue of the investor company

C.no entry is made to record dividends in this accounting situation

D.a debit to the Investment account of the investor company

Answer 1

1.

Short term investments are usually equity and debt securities. They are expected to sold within a year. They are indicated in the current assets section of the balance sheet

2.

if the sale of an asset less than its book value will be treated as a loss and will be shown as an expense in the the income statement.The asset section shows the value of assets in the company.

3.

If the investees company pays cash dividend the value of net assets gets decreases. Under the equity method, the investor company receiving the dividend records such that it records increasing in cash balance meanwhile, reporting decrease in the value of its investment.

Answer : credit to investment account of the investor company