Question

Equity securities are recorded _____ when acquired, including commissions or brokerage fees paid. Any cash dividends received are credited to _________________ and reported in the __________. When the securities are sold, sales proceeds are compared with ____, and any gain or loss is recorded.

Answer 1

Equity securities are recorded at cost including fees, dividends are credited to revenue, and gains or losses are recognized upon sale. Returns come from dividends and capital gains. Firms don't gain additional funds from post-IPO trading.

Step-by-step explanation:

Equity securities are recorded at cost when acquired, including commissions or brokerage fees paid. Any cash dividends received are credited to dividend revenue and reported in the income statement. When the securities are sold, sales proceeds are compared with the securities' carrying amount, and any gain or loss is recorded in the income statement. Each share of stock bought by an investor gives them a portion of the company's ownership.

Investors receive a return on their investment through two main forms - dividends and capital gains. For instance, buying Wal-Mart stock at $45 and selling it at $60 realizes a capital gain of $15 per share. However, it's important to note that when stocks are traded between investors, the firm itself does not receive additional funds post-initial public offering (IPO).