Lesson 6

Question 1

What are equity securities?

Answer 1

They represent ownership interests such as common, preferred, or other capital stock.

Question 2

What are the 3 classifications of investments?

Answer 2

1. Fair value method - investor has passive interest
2. Equity method - investor has significant influence
3. Consolidated statements - investor has controlling interest

Question 3

What percentage of of holdings (valuation) for each:
- Fair Value Method accounting treatment.
- Equity Method accounting treatment
- Consolidated Statements

Answer 3

When investor has holdings of less than 20%
When investor has holdings between 20 -50%
When investor has holdings of more than 50%

Question 4

Equity securities have no maturity date.
True or False?

Answer 4

True.

Question 5

The investor recognizes net income only when the invested declares cash dividends, in which percentage of holdings category?

Answer 5

Holdings of less than 20%

Question 6

What equity securities are acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses?

Answer 6

Securities where a company has holdings of less than 20%