Question 1

Trading securities should be reported on the financial statements at fair market value.

Accepted Answer

A) True 
 B)False

Question 2

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Accepted Answer

A) True 
 B)False

Question 3

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net income of $95,000 and declared dividends of $35,000 during the year. How much would Ramiro adjust its investment in Marco Company under the equity method?

Accepted Answer

The answer of Ramiro Company purchased 40% of the outstanding...

Question 4

The price that would be received to sell an asset or pay off a liability is

Accepted Answer

A)  the fair value 
B)  the market value 
C)  the investing value 
D)  the historical value 
A)  the fair value 
B)  the market value 
C)  the investing value 
D)  the historical value

Question 5

An equity investment in less than 20% of another company's stock is accounted for using the cost method.

Accepted Answer

A) True 
 B)False

Question 6

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

Accepted Answer

A) True 
 B)False

Question 7

Comprehensive income does not affect net income or retained earnings.

Accepted Answer

A) True 
 B)False

Question 8

Any gains or losses on the sale of bonds normally would be reported in the Other Income Loss) section of the income statement.

Accepted Answer

A) True 
 B)False

Question 9

Temporary investments are recorded at their cost, which would include broker's commissions.

Accepted Answer

A) True 
 B)False

Question 10

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the purchase would be

Accepted Answer

A)  debit Investment-Evans Company Bonds, $101,500; credit Cash, $101,500 
B)  debit Investment-Evans Company Bonds, $100,000; credit Interest Revenue, $1,500, and Cash, $98,500 
C)  debit Investment-Evans Company Bonds, $100,000, and Interest Receivable $1,500; credit Cash $101,500 
D)  debit Investment-Evans Company Bonds, $100,000; credit Cash $100,000 
A)  debit Investment-Evans Company Bonds, $101,500; credit Cash, $101,500 
B)  debit Investment-Evans Company Bonds, $100,000; credit Interest Revenue, $1,500, and Cash, $98,500 
C)  debit Investment-Evans Company Bonds, $100,000, and Interest Receivable $1,500; credit Cash $101,500 
D)  debit Investment-Evans Company Bonds, $100,000; credit Cash $100,000

Question 11

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

Accepted Answer

A) True 
 B)False

Question 12

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Accepted Answer

A) True 
 B)False

Question 13

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Accepted Answer

A)  $400 
B)  $406 
C)  $2,000 
D)  $2,400 
A)  $400 
B)  $406 
C)  $2,000 
D)  $2,400

Question 14

Match each of the definitions that follow with the appropriate investment term a-j).
-debt investments that a company intends to keep until their maturity date

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 15

Yankton Company began the year without an investment portfolio. During the year, they purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

Accepted Answer

A)  a loss of $2,000 on the income statement and net trading securities of $13,000 on the balance sheet 
B)  no loss on the income statement and net trading securities of $13,000 on the balance sheet 
C)  no loss on the income statement, net trading securities of $11,000, and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet 
D)  a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet 
A)  a loss of $2,000 on the income statement and net trading securities of $13,000 on the balance sheet 
B)  no loss on the income statement and net trading securities of $13,000 on the balance sheet 
C)  no loss on the income statement, net trading securities of $11,000, and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet 
D)  a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet

Question 16

An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

Accepted Answer

A)  $3,500 gain 
B)  $350 gain 
C)  $350 loss 
D)  $500 gain 
A)  $3,500 gain 
B)  $350 gain 
C)  $350 loss 
D)  $500 gain

Question 17

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Accepted Answer

A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased 
A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased

Question 18

Comprehensive income must be reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 19

Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year. On January 1, the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000. Determine the a) comprehensive income for the year, b) retained earnings balance on December 31, and c) the accumulated other comprehensive income on December 31.

Accepted Answer

a)$87,500 $75,000 +

Question 20

a) Discuss factors contributing to the trend to fair value accounting.
b) What are some of the disadvantages associated with using fair value?

Accepted Answer

a) Factors contributing to the trend to

Exam 13: Investments and Fair Value Accounting

Trading securities should be reported on the financial statements at fair market value.

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net income of $95,000 and declared dividends of $35,000 during the year. How much would Ramiro adjust its investment in Marco Company under the equity method?

The price that would be received to sell an asset or pay off a liability is

An equity investment in less than 20% of another company's stock is accounted for using the cost method.

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

Comprehensive income does not affect net income or retained earnings.

Any gains or losses on the sale of bonds normally would be reported in the Other Income Loss) section of the income statement.

Temporary investments are recorded at their cost, which would include broker's commissions.

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the purchase would be

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Match each of the definitions that follow with the appropriate investment term a-j). -debt investments that a company intends to keep until their maturity date

An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Comprehensive income must be reported on the income statement.

a) Discuss factors contributing to the trend to fair value accounting. b) What are some of the disadvantages associated with using fair value?

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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