What is the key difference between trading securities and available-for-sale securities?

Trading securities are valued at historical cost, while available-for-sale securities are valued at fair market value.

Gains and losses for trading securities are reported on the income statement, while gains and losses for available-for-sale securities are not reported until they are sold.

Trading securities are intended for long-term investment, while available-for-sale securities are intended for short-term investment.

Trading securities are reported as a separate line item in stockholders' equity, while available-for-sale securities are reported as part of retained earnings.

What are the three classifications for debt and equity investments based on the intent of the company regarding their holding period?

Short-term, medium-term, long-term

Trading securities, available-for-sale securities, held-to-maturity securities

Active investments, passive investments, speculative investments

Current assets, fixed assets, intangible assets

When are gains and losses for available-for-sale securities reported on the income statement?

Every year on the balance sheet date

At the time of classification as available-for-sale

Under what circumstances are trading securities revalued?

At each balance sheet date to their fair market value

When the company plans to hold them until maturity

When they are classified as available-for-sale securities

How are gains and losses for trading securities recorded in the financial statements?

They are reported on the income statement as they occur.

They are reported as a separate line item in stockholders' equity.

They are reported as a deduction from the securities' cost.

They are reported in the cash flow statement under investing activities.

How are gains and losses for available-for-sale securities reported in the financial statements?

They are reported on the income statement as they occur.

They are reported as a separate line item in stockholders' equity.

They are reported as a deduction from the securities' cost.

They are reported in the cash flow statement under financing activities.

What is the main determining factor for classifying an investment as held-to-maturity security?

The company's intention and ability to hold the investment until it matures.

The potential for short-term gains from the investment.

The investment's credit rating and risk profile.

The investment's market price volatility.

How are gains and losses for held-to-maturity securities typically recorded in the financial statements?

They are reported on the income statement as they occur.

They are reported as a separate line item in stockholders' equity.

They are reported as a deduction from the securities' cost.

They are not separately reported; only interest income is recorded.

What is the purpose of a valuation account used in the context of trading securities?

To track the interest income earned on trading securities.

To account for changes in the market value of trading securities.

To track the dividends received from trading securities.

To record the original cost of trading securities.

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