Question

For each of the transactions described in column A below, indicate the appropriate category for each security. Each category may be used once, more than once, or not at all.

a) Held-to-maturity category

b) Available-for-sale category

c) Trading category

d) Fair value category

e) Equity method category

1.Debt securities are bought and held for the purpose of making a profit on short-term interest rate changes.

2. U.S. Treasury bonds are bought with the positive intent and ability to hold them until they mature.

3. Convertible preferred stock, which is traded in an active market, is bought with the prospect of converting it to common stock three to five years in the future.

4. Common stock is bought, which results in ownership of 10% of the shares outstanding and gives significant influence over the operating and financial activities of the investee.

5. Debt securities are bought and held with the intent of selling in three years to pay off a long-term note that comes due at that time.

Answer 1

Answer:-

1.Debt securities are bought and held for the purpose of making a profit on short-term interest rate changes;-

d) Fair value category

2. U.S. Treasury bonds are bought with the positive intent and ability to hold them until they mature:-

a) Held-to-maturity category

3. Convertible preferred stock, which is traded in an active market, is bought with the prospect of converting it to common stock three to five years in the future:-

c) Trading category

4. Common stock is bought, which results in ownership of 10% of the shares outstanding and gives significant influence over the operating and financial activities of the investee:-

e) Equity method category

5. Debt securities are bought and held with the intent of selling in three years to pay off a long-term note that comes due at that time:-

b) Available-for-sale category