Rajiv Services invests its excess cash in Shamina Technologies and acquires 1,00

Question

Rajiv Services invests its excess cash in Shamina Technologies and acquires 1,000 shares for $53.25. Rajiv Services owns less than 1% of Shamina’s voting stock and plans to hold the stock for two years. Which entry below will record this transaction? A) Long-term Investments—Available-for-Sale will be debited for $53,250. B) Long-term Investments—Held-to-Maturity will be debited for $53,250. C) Long-term Investments—Trading Investments will be credited for $53,250. D) Long-term Investments—Significant Interest Investments will be debited for $53,250.

Explanation / Answer

As the investment is going to be held for a period of more than one year it can be classified under long term investment. This is held for sale after a period of 2 years and not held for maturity hence the account to be debited would be A) Long-term Investments—Available-for-Sale will be debited for $53,250.

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