Question

tb mc qu. 15 - 132 (algo) on february 15, jewel company buys...
on february 15, jewel company buys notes of marcelo corporation for $200,210. the investment is classified as long - term available - for - sale securities. this is the companys first and only investment in available - for - sale securities. the journal entry to record the purchase on february 15 is.
multiple choice
debit equity method investments $200,210; credit cash $200,210.
debit debt investments—available - for - sale (afs) $200,210; credit notes payable $200,210.
debit stock investments — trading $200,210; credit cash $200,210.
debit debt investments—trading $200,210; credit notes payable $200,210.
debit debt investments—available - for - sale (afs) $200,210; credit cash $200,210.

Explanation:

When recording the purchase of available - for - sale securities (notes are debt instruments), the correct account to debit is "Debt Investments—Available - for - Sale (AFS)". Since the company is using cash to make the purchase, the cash account is credited.

• The "Equity Method Investments" is used for equity investments where significant influence exists, not for debt securities.
• Crediting "Notes Payable" is incorrect as the company is not taking on a liability (issuing a note) but using cash.
• "Stock Investments—Trading" and "Debt Investments—Trading" are for securities held for short - term trading purposes, not long - term available - for - sale.

Answer:

Debit Debt Investments—Available - for - Sale (AFS) $200,210; credit Cash $200,210.