ABC Inc. engaged in the following selected transactions during the year. Identify whether each of 1 through 8 represents an equity investment (E), investment in a debt security (D), or neither (N) from ABC Inc.’s perspective. If you answer ’N,’ explain.
1. Purchased 5,000 shares of Douglas Inc. to be held for about 30 days.
2. Purchased at par a $100,000, 5% five-year bond; interest is payable quarterly and the bond will be held until maturity.
3. Purchased 50,000 of the 80,000 authorized shares of Dolby Inc.
4. Purchased equipment costing $140,000 by issuing shares.
5. Purchased land costing $289,000 by borrowing $200,000 from the bank and issuing shares for the balance.
6. Signed a contract with two other organizations regarding a project to develop and market a new computer program; each investor has a 1/3 share in the project costs and revenues.
7. Purchased 80,000 Inco shares to be held for several years; Inco has over 5 million shares issued and outstanding.
8. Purchased 3,000 Perdu shares, representing a 25% ownership interest.