MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

Question

Quizplus · Accepted Answer

Since MotorCity, Inc. purchased 40% of the outstanding stock, the investment should be recorded as a long-term investment. Therefore, the entry should include a debit to Long-Term Investments for the cost of the investment, which is $232,000. Option A is incorrect because Short-Term Investment-AFS is not applicable for a long-term investment. Option B is incorrect because the investment should be classified as long-term, not short-term. Option D is incorrect because HTM (held-to-maturity) investments are debt securities, not equity securities like Shaw common stock. Option E is incorrect because the credit amount does not match the cost of the investment.