Question 1

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Accepted Answer

A) True 
 B)False

Question 2

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Accepted Answer

A) True 
 B)False

Question 3

Match each of the definitions that follow with the appropriate investment term a-j).
-the value assigned to held-to-maturity securities

Accepted Answer

A) equity method 
B) parent company 
C) subsidiary company 
D) consolidated financial statements 
E) fair value
F)unrealized gain or loss on investments.
G)valuation allowance for investments
H)dividend yield
I)amortized cost
J)cost method 
A) equity method 
B) parent company 
C) subsidiary company 
D) consolidated financial statements 
E) fair value
F)unrealized gain or loss on investments.
G)valuation allowance for investments
H)dividend yield
I)amortized cost
J)cost method

Question 4

a) What is comprehensive income? b) How is it calculated? c) What are some examples of items included in other comprehensive income? d) Where is comprehensive income reported?

Accepted Answer

a) Comprehensive income is all changes i

Question 5

Journalize the entries to record the following selected equity investment transactions completed by Perry Company during the current year. Perry accounts for this investment using the cost method.

Accepted Answer

Feb. 2 Investments-Dexter Co. Stock 49,0

Question 6

Match each of the definitions that follow with the appropriate investment term a-j).
-the company whose stock is purchased by another entity

Accepted Answer

A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination 
A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination

Question 7

Which of the following is not a reason to invest excess cash in temporary investments?

Accepted Answer

A)  earn interest revenue 
B)  influence the operations of another company 
C)  receive dividends 
D)  realize gains from the increase in market value of the securities 
A)  earn interest revenue 
B)  influence the operations of another company 
C)  receive dividends 
D)  realize gains from the increase in market value of the securities

Question 8

Trading securities are reported on the balance sheet at cost.

Accepted Answer

A) True 
 B)False

Question 9

Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

Accepted Answer

A) True 
 B)False

Question 10

Match each of the definitions that follow with the appropriate investment term a-j).
-the method of reporting an investment that represents less than 20% of the voting stock of another company

Accepted Answer

A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination 
A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination

Question 11

The equity method of accounting for investments

Accepted Answer

A)  requires a year-end adjustment to revalue the stock to lower of cost or market 
B)  requires the investment to be reported at its original cost 
C)  requires the investment be increased by the reported net income of the investee 
D)  requires the investment be increased by the dividends paid by the investee 
A)  requires a year-end adjustment to revalue the stock to lower of cost or market 
B)  requires the investment to be reported at its original cost 
C)  requires the investment be increased by the reported net income of the investee 
D)  requires the investment be increased by the dividends paid by the investee

Question 12

Match each of the definitions that follow with the appropriate investment term a-j).
-a corporation owning all or the majority of the voting stock of another corporation

Accepted Answer

A) equity method 
B) parent company 
C) subsidiary company 
D) consolidated financial statements 
E) fair value
F)unrealized gain or loss on investments.
G)valuation allowance for investments
H)dividend yield
I)amortized cost
J)cost method 
A) equity method 
B) parent company 
C) subsidiary company 
D) consolidated financial statements 
E) fair value
F)unrealized gain or loss on investments.
G)valuation allowance for investments
H)dividend yield
I)amortized cost
J)cost method

Question 13

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include a

Accepted Answer

A)  debit to Cash, $111,840 
B)  credit to Investments, $112,000 
C)  credit to Loss on Sale, $23,680 
D)  debit to Cash, $112,000 
A)  debit to Cash, $111,840 
B)  credit to Investments, $112,000 
C)  credit to Loss on Sale, $23,680 
D)  debit to Cash, $112,000

Question 14

To record a bond investment made between interest payment dates, Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

Accepted Answer

A) True 
 B)False

Question 15

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Accepted Answer

A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary 
A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary

Question 16

Interest revenue on bonds is reported

Accepted Answer

A)  as an addition to the Investment in Bonds account 
B)  as part of comprehensive income but not as part of net income 
C)  as part of other income 
D)  as part of operating income 
A)  as an addition to the Investment in Bonds account 
B)  as part of comprehensive income but not as part of net income 
C)  as part of other income 
D)  as part of operating income

Question 17

In general, consolidated financial statements should be prepared

Accepted Answer

A)  when a corporation owns more than 20% and less than 40% of the common stock of another company 
B)  when a corporation owns more than 50% of the common stock of another company 
C)  only when a corporation owns 100% of the common stock of another company 
D)  whenever the market value of the stock investment is significantly lower than its cost 
A)  when a corporation owns more than 20% and less than 40% of the common stock of another company 
B)  when a corporation owns more than 50% of the common stock of another company 
C)  only when a corporation owns 100% of the common stock of another company 
D)  whenever the market value of the stock investment is significantly lower than its cost

Question 18

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Accepted Answer

When companies temporarily have excess c

Question 19

Match each of the definitions that follow with the appropriate investment term a-j).
-when using this, dividends are treated as a reduction of the investment

Accepted Answer

A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination 
A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination

Question 20

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as an)

Accepted Answer

A)  prior period adjustment 
B)  operating income and losses 
C)  paid-in capital addition 
D)  gain or loss 
A)  prior period adjustment 
B)  operating income and losses 
C)  paid-in capital addition 
D)  gain or loss

Exam 13: Investments and Fair Value Accounting

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Match each of the definitions that follow with the appropriate investment term a-j). -the value assigned to held-to-maturity securities

a) What is comprehensive income? b) How is it calculated? c) What are some examples of items included in other comprehensive income? d) Where is comprehensive income reported?

Journalize the entries to record the following selected equity investment transactions completed by Perry Company during the current year. Perry accounts for this investment using the cost method.

Match each of the definitions that follow with the appropriate investment term a-j). -the company whose stock is purchased by another entity

Which of the following is not a reason to invest excess cash in temporary investments?

Trading securities are reported on the balance sheet at cost.

Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

Match each of the definitions that follow with the appropriate investment term a-j). -the method of reporting an investment that represents less than 20% of the voting stock of another company

The equity method of accounting for investments

Match each of the definitions that follow with the appropriate investment term a-j). -a corporation owning all or the majority of the voting stock of another corporation

To record a bond investment made between interest payment dates, Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Interest revenue on bonds is reported

In general, consolidated financial statements should be prepared

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Match each of the definitions that follow with the appropriate investment term a-j). -when using this, dividends are treated as a reduction of the investment

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as an)

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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