Green Services invests its excess cash in Creative Technologies and acquires 1,000 shares for $53.25. Green Services owns less than 1% of Creative's voting stock and plans to hold the stock for two years. While preparing the journal entry to record this transaction:

Question

Quizplus · Accepted Answer

Green Services' intention to hold the stock for two years indicates that the investment is not a trading investment. The company also owns less than 20% of the voting stock, which means it does not have significant interest in Creative Technologies. The investment is not held-to-maturity because there is no indication that Green Services has the intent and ability to hold the investment until maturity. As the investment is not trading or significant interest investment, it should be classified as available-for-sale, and its cost should be recorded in the Long-term Investments-Available-for-Sale account. Therefore, A is the correct answer.

Green Services Invests Its Excess Cash in Creative Technologies and Acquires