Beige Corporation pays $536,000 to acquire 40% of the equity securities of Olive Technologies,Inc.on May 5,2017.In the journal entry to record this transaction ________.

Question

Quizplus · Accepted Answer

The journal entry to record the acquisition of equity securities is to debit the Long-term Investments account and credit Cash, since funds were used to purchase the investment. In this case, we know that the investment is in Olive Technologies, Inc., so the specific account to be debited would be Long-term Investments-Olive Technologies, Inc. Choice A is incorrect because trading securities are investments that are bought and sold frequently, whereas the information provided suggests that this investment is a long-term investment. Choice C is incorrect because available-for-sale securities are reported on the balance sheet at fair value, but the problem does not provide information on whether this investment will be classified as available-for-sale. Choice D is incorrect because the investment is being acquired, not sold.

Beige Corporation Pays $536,000 to Acquire 40% of the Equity