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Chapter 13: Q1Q (page 658)

Question: Distinguish between debt security and equity security.

Short Answer

Expert verified

Answer

Some of the differences between them are ownership, maturity date, type of return, voting right, and management participation.

Step by step solution

01

Definition of a debt security

Debt securities are securities in which the issuer of the debt security promises to pay the amount to the holder of the security on the maturity date with the fixed rate of interest.

02

Definition of equity securities

Equity securities are securities that show the ownership status of the company. The holder of the equity securities is known as the company's owner.

03

Difference between debt securities and equity securities

  1. The holder of the equity securities is known as the company's owner, whereas debt security is treated as the loan for the company.
  2. Debt securities have a maturity date, whereas equity securities have no maturity date.
  3. Equity security holders get variable returns, whereas the holder of the debt securities holder gets a fixed return on their investment.
  4. Equity securities holders have voting rights, whereas debt securities holders have no voting rights,
  5. Equity securities holders can participate in the management, whereas debt securities holders have no right to participate in the management.

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Most popular questions from this chapter

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.

Identify and explain the different types of classifications for investments in equity securities.

Question: In determining the amount of a provision, a company using IFRS should generally measure:

(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.

(b) Using the minimum amount of the loss in the range.

(c) Using the best estimate of the amount of the loss expected to occur.

(d) Using the maximum amount of the loss in the range.

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.
See all solutions

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