Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive Technologies Inc.on May 5,2015.Which of the following will be included in the journal entry to record this transaction?

Question

Quizplus · Accepted Answer

When a company acquires equity securities of another company, the Long-term Investments account is used to record the transaction. In this case, since Beige Corporation is acquiring 40% of Olive Technologies Inc., the Long-term Investments account should be debited for the $500,000 cost of the investment. Choice A is incorrect because the trading investment account is used for short-term investments, not long-term investments. Choice C and D are both incorrect because the available-for-sale account is used for investments that are not intended to be held to maturity, whereas the question does not provide information about the intended holding period for the investment.

Beige Corporation Pays $500,000 to Acquire 40% of the Equity