Page | 1
INVESTMENT BANKING 400 –
ACCOUNTING 2026 LATEST
QUESTIONS AND ANSWERS| ACE
YOUR GRADES.
What are the three different types of intercompany investments? -
correct answer -1. Investments in Securities: The investment in
securities method is used when a company invests in another
company's equity, but the ownership percentage is less than
20%. These investments are treated as minor, passive financial
investments due to the insignificant influence.
2. Equity Investments Method: When a company owns between
20-50% of another company, this is considered a significant level
of influence. Thus, proper accounting treatment would be the
equity method. Under the equity method, an investment is initially
measured at the acquisition price and recorded as an "Investment
in Affiliate" (or "Investment in Associate") on the assets side.
Although a noncontrolling stake, this type of ownership is
considered influential enough to affect the target's decisions.
3. Consolidation Method: When the parent company has majority
control over 50% ownership, the consolidation method is used.
Instead of creating an individual investment asset, the target
company's balance sheet is consolidated with the acquirer. To
reflect that the acquirer owns less than 100% of the consolidated
assets and liabilities, a new equity line titled "Non-Controlling
, Page | 2
Interests" (NCI) is created, which captures the value of equity in
the consolidated business held by non-controlling (minority)
interests (other third parties).
What are the three sub-classifications of investment securities? -
correct answer -1. Trading Securities: These are debt or equity
investments intended to generate short-term profits. The
purchase amount of the security will be recorded at its initial cost
on the balance sheet and periodically marked-to-market until sold.
Any unrealized gain/(loss) will be recorded on the income
statement throughout the holding period until the realized
gain/(loss) when sold.
2. Available-for-Sale Securities ("AFS"): These are debt or equity
securities held for the long-term but sold before maturity. The
investment amount will be recorded at the initial cost on the
balance sheet, markedto-market until the sale, and categorized as
either current or non-current. A distinction from trading securities
is how unrealized gains or losses are not be reflected on the
income statement, but recorded as "Accumulated Other
Comprehensive Income" on the balance sheet. Once sold, the
realized gain/(loss) will be recognized on the income statement.
3. Held-to-Maturity Securities ("HTM"): These are long-term
investments in debt securities held until the end of their term.
HTM applies only to debt instruments, typically government
bonds, certificates of deposit (CDs), and investment-grade
corporate bonds, as they have fixed payment schedules and
, Page | 3
maturity dates. HTM securities are low risk, low return holdings
since there's a low risk of default, and the long-term holding
horizon helps mitigate many risks. The investment's original cost
is recorded on the balance sheet (reported at amortized cost).
However, the value of the investment is not adjusted following
changes in its FMV due to the HTM classification.
Could you name an example of an asset that's exempt from the
cost principle rule? - correct answer -Mark-to-market accounting
would record the asset at its current fair market value and then
adjust the value to reflect what an asset would sell for today.
There are a few exceptions to the cost principle rule, with one of
them being marketable securities, which are highly liquid and
traded on stock exchanges.
What is trapped cash and what benefit does it provide to
companies? - correct answer -Trapped cash refers to the
accumulation of cash overseas by multinational companies. While
not illegal, companies keep this cash offshore to avoid certain
repatriation taxes if brought back to the US.
For example, Apple held ~$250 billion overseas at one point,
mainly in Ireland, which has been known as a "tax-haven." While
CEO Tim Cook had to defend Apple's tax practices to Congress,
there was no sign of illegal wrongdoing, and Cook's
counterargument was that Apple paid all required tax payments
, Page | 4
related to sales conducted in the US and shifted the narrative
towards how Apple is a global company.
During the Trump administration, fixing this issue and
incentivizing US companies to bring their operations back to their
home country was a key objective. But even after the tax cuts
went into effect, many corporations retained significant amounts
of cash abroad - well short of the predicted $4 trillion expected to
be brought back. For multinational companies with operations in
several countries, there's no clear incentive or obligation why they
would have to bring all their cash and operations back to the US.
When can a company capitalize software development costs
under accrual accounting? - correct answer -The capitalization of
software development costs involves internally developed
software costs being recognized similar to fixed asset purchases,
as opposed to being expensed as incurred in the current period.
These software-related costs can include programmers'
compensation, market testing, and various direct or indirect
overhead costs related to bringing the software to the public. To
capitalize software development costs, the software being
developed must be eligible based on GAAP's criterion.
Broadly, there are two stages of software development in which a
company can capitalize software costs:
INVESTMENT BANKING 400 –
ACCOUNTING 2026 LATEST
QUESTIONS AND ANSWERS| ACE
YOUR GRADES.
What are the three different types of intercompany investments? -
correct answer -1. Investments in Securities: The investment in
securities method is used when a company invests in another
company's equity, but the ownership percentage is less than
20%. These investments are treated as minor, passive financial
investments due to the insignificant influence.
2. Equity Investments Method: When a company owns between
20-50% of another company, this is considered a significant level
of influence. Thus, proper accounting treatment would be the
equity method. Under the equity method, an investment is initially
measured at the acquisition price and recorded as an "Investment
in Affiliate" (or "Investment in Associate") on the assets side.
Although a noncontrolling stake, this type of ownership is
considered influential enough to affect the target's decisions.
3. Consolidation Method: When the parent company has majority
control over 50% ownership, the consolidation method is used.
Instead of creating an individual investment asset, the target
company's balance sheet is consolidated with the acquirer. To
reflect that the acquirer owns less than 100% of the consolidated
assets and liabilities, a new equity line titled "Non-Controlling
, Page | 2
Interests" (NCI) is created, which captures the value of equity in
the consolidated business held by non-controlling (minority)
interests (other third parties).
What are the three sub-classifications of investment securities? -
correct answer -1. Trading Securities: These are debt or equity
investments intended to generate short-term profits. The
purchase amount of the security will be recorded at its initial cost
on the balance sheet and periodically marked-to-market until sold.
Any unrealized gain/(loss) will be recorded on the income
statement throughout the holding period until the realized
gain/(loss) when sold.
2. Available-for-Sale Securities ("AFS"): These are debt or equity
securities held for the long-term but sold before maturity. The
investment amount will be recorded at the initial cost on the
balance sheet, markedto-market until the sale, and categorized as
either current or non-current. A distinction from trading securities
is how unrealized gains or losses are not be reflected on the
income statement, but recorded as "Accumulated Other
Comprehensive Income" on the balance sheet. Once sold, the
realized gain/(loss) will be recognized on the income statement.
3. Held-to-Maturity Securities ("HTM"): These are long-term
investments in debt securities held until the end of their term.
HTM applies only to debt instruments, typically government
bonds, certificates of deposit (CDs), and investment-grade
corporate bonds, as they have fixed payment schedules and
, Page | 3
maturity dates. HTM securities are low risk, low return holdings
since there's a low risk of default, and the long-term holding
horizon helps mitigate many risks. The investment's original cost
is recorded on the balance sheet (reported at amortized cost).
However, the value of the investment is not adjusted following
changes in its FMV due to the HTM classification.
Could you name an example of an asset that's exempt from the
cost principle rule? - correct answer -Mark-to-market accounting
would record the asset at its current fair market value and then
adjust the value to reflect what an asset would sell for today.
There are a few exceptions to the cost principle rule, with one of
them being marketable securities, which are highly liquid and
traded on stock exchanges.
What is trapped cash and what benefit does it provide to
companies? - correct answer -Trapped cash refers to the
accumulation of cash overseas by multinational companies. While
not illegal, companies keep this cash offshore to avoid certain
repatriation taxes if brought back to the US.
For example, Apple held ~$250 billion overseas at one point,
mainly in Ireland, which has been known as a "tax-haven." While
CEO Tim Cook had to defend Apple's tax practices to Congress,
there was no sign of illegal wrongdoing, and Cook's
counterargument was that Apple paid all required tax payments
, Page | 4
related to sales conducted in the US and shifted the narrative
towards how Apple is a global company.
During the Trump administration, fixing this issue and
incentivizing US companies to bring their operations back to their
home country was a key objective. But even after the tax cuts
went into effect, many corporations retained significant amounts
of cash abroad - well short of the predicted $4 trillion expected to
be brought back. For multinational companies with operations in
several countries, there's no clear incentive or obligation why they
would have to bring all their cash and operations back to the US.
When can a company capitalize software development costs
under accrual accounting? - correct answer -The capitalization of
software development costs involves internally developed
software costs being recognized similar to fixed asset purchases,
as opposed to being expensed as incurred in the current period.
These software-related costs can include programmers'
compensation, market testing, and various direct or indirect
overhead costs related to bringing the software to the public. To
capitalize software development costs, the software being
developed must be eligible based on GAAP's criterion.
Broadly, there are two stages of software development in which a
company can capitalize software costs:
