Question

1. What balance sheet classification would be used for a debt security that a company intends to hold for only a short period of time?

Trading security

Available-for-sale security

Held-to-maturity security

Noncontrolling interest

2. What balance sheet classification would be used for a debt security that a company has both the positive intent and ability to hold until all principal and interest is fully paid?

Trading security

Held-to-maturity security

Available-for-sale security

Equity investment

3. Which of the following types of investments results in recognition of unrealized gain or loss in other comprehensive income?

Trading securities

Available for sale securities

Held to maturity securities

All of the above

Answer 1

For the Above Questions , We have to first understand the meaning of these terms - Trading Securities , Available for Sale Securities and Held to maturity Securities.

Trading Securities are the security which are kept for a shorter period of time because the management activity buy or sell them to make short term gains for these investments. They are reported at fair value , with unrealized gains and losses , through profit and loss statement.

Available For Sale Securities are the securities which do not have maturity date , and they are usually held for a longer period of time than trading securities. Unrealized gains or loss are reported at fair value, through other comprehensive income.

Held to maturity securities are the securities which enterprises has the intent and ability to hold to maturity.They are reported at amortixed cost.

So Answers for the above question are

1)What balance sheet classification would be used for a debt security that a company intends to hold for only a short period of time?

Answer is option 1 i.e Trading Security as the company intends to hold debt security for short period of time.

2) What balance sheet classification would be used for a debt security that a company has both the positive intent and ability to hold until all principal and interest is fully paid?

Answer is option 2 i.e Held-to-maturity Security as the company has both the positive intent and ability to hold debt security untill all principal and interest is fully paid.

3) What balance sheet classification would be used for a debt security that a company has both the positive intent and ability to hold until all principal and interest is fully paid?

Answer is option 2 i.e Available for Sale securities as the investment results in Unrealized gain or loss in other comprehensive income.