Matthew Company Purchases a Trading Security for $12,000 Cash

question 156

Multiple Choice

Matthew Company purchases a trading security for $12,000 cash. The journal entry to record this transaction will include a:

• A)debit to the Investment in Trading Securities account and a credit to Cash.
• B)debit to Cash and a credit to the Investment in Trading Securities account.
• C)debit to the Long-term Investment account and a credit Cash.
• D)debit to the Unrealized Loss on Trading Securities account and a credit to Cash.

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Definitions:

Spinoff

A method of divesting a business unit by setting it up as a separate company and giving its shares to stockholders in proportion to their holdings of the original firm. After the spinoff stockholders can trade the two stocks separately.

Bankruptcy Proceedings

Legal process initiated by an insolvent individual or company to receive relief from debt by reorganizing or liquidating assets.

Creditors

Entities or individuals that a company owes money to due to the provision of goods, services, or loans.

Reorganization

In bankruptcy, a plan to restructure the failing company so that it may continue in business.