At the Time of Acquisition of a Debt Investment

question 141

Multiple Choice

At the time of acquisition of a debt investment

• A) no journal entry is required.
• B) the historical cost principle applies.
• C) the Stock Investments account is debited when bonds are purchased.
• D) the Investment account is credited for its cost plus brokerage fees.

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Definitions:

External Party

An entity or individual that is outside of an organization and can include suppliers, customers, government agencies, and lenders.

Company Tax Rate

The rate at which a company is taxed on its profits by the government.

Inventories

The total amount of goods available for sale and raw materials available to produce those goods held by a company.

Subsidiary Entity

A company that is controlled by another company, often referred to as the parent company, through ownership of more than half of the subsidiary's voting stock.