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Question 16: A company invests $50,000 in marketable securities with a 2-year term and an annual interest rate of 5%. Provide a comprehensive explanation of
Question 16: A company invests $50,000 in marketable securities with a 2-year term and an annual interest rate of 5%. Provide a comprehensive explanation of the journal entries and subsequent adjustments to record the investment, interest income, and maturity proceeds.
Requirements:
- Record the journal entry to recognize the initial investment in marketable securities.
- Post the journal entry to the Marketable Securities account in the ledger.
- Calculate the amount of interest income earned at the end of the first year.
- Record the journal entry to recognize interest income earned on marketable securities.
- Post the journal entry to the Interest Income account in the ledger.
- Analyze how the investment in marketable securities affects the company's balance sheet and income statement.
- Discuss the importance of monitoring marketable securities for changes in fair value and interest rates.
- Evaluate the impact of marketable securities on a company's liquidity and investment portfolio.
- Prepare the journal entry to record the receipt of maturity proceeds at the end of the investment term.
- Post the journal entry to the Cash account in the ledger.
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