Question 1

Match the approach and location where gains and losses from available-for-sale securities are reported:

Accepted Answer

The answer of Match the approach and location where gains...

Question 2

If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.

Accepted Answer

A) True 
 B)False

Question 3

Use the following information for questions 99 through 102.
The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows:  
-If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $215,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been

Accepted Answer

A)  $270,000. 
B)  $215,000. 
C)  $172,500. 
D)  $208,500. 
A)  $270,000. 
B)  $215,000. 
C)  $172,500. 
D)  $208,500.

Question 4

Unrealized holding gains or losses which are recognized in income are from securities classified as

Accepted Answer

A)  held-to-maturity. 
B)  available-for-sale. 
C)  trading. 
D)  None of these answers are correct. 
A)  held-to-maturity. 
B)  available-for-sale. 
C)  trading. 
D)  None of these answers are correct.

Question 5

Gains or losses on cash flow hedges are

Accepted Answer

A)  ignored completely. 
B)  recorded in equity, as part of other comprehensive income. 
C)  reported directly in net income. 
D)  reported directly in retained earnings. 
A)  ignored completely. 
B)  recorded in equity, as part of other comprehensive income. 
C)  reported directly in net income. 
D)  reported directly in retained earnings.

Question 6

Transfers between categories

Accepted Answer

A)  result in companies omitting recognition of fair value in the year of the transfer. 
B)  are accounted for at fair value for all transfers. 
C)  are considered unrealized and unrecognized if transferred out of held-to-maturity into trading. 
D)  will always result in an impact on net income. 
A)  result in companies omitting recognition of fair value in the year of the transfer. 
B)  are accounted for at fair value for all transfers. 
C)  are considered unrealized and unrecognized if transferred out of held-to-maturity into trading. 
D)  will always result in an impact on net income.

Question 7

During 2014, Woods Company purchased 60,000 shares of Holmes Corporation common stock for $945,000 as an available-for-sale investment. The fair value of these shares was $900,000 at December 31, 2014. Woods sold all of the Holmes stock for $17 per share on December 3, 2015, incurring $42,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2015 of

Accepted Answer

A)  $33,000. 
B)  $75,000. 
C)  $78,000. 
D)  $120,000. 
A)  $33,000. 
B)  $75,000. 
C)  $78,000. 
D)  $120,000.

Question 8

Use the following information for questions 7 and 8
Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of Pear Company The investment's carrying value is $3,200,000 at December 31, 2014. On January 9, 2015, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2016, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
-If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using U.S. GAAP for its external financial reporting, which of the following is true?

Accepted Answer

A)  Rushia is prohibited from recording the recovery in value of the impaired investment. 
B)  Rushia may record a recovery of $900,000. 
C)  Rushia may record a recovery of $700,000. 
D)  Rushia may record a recovery of $1,600,000. 
A)  Rushia is prohibited from recording the recovery in value of the impaired investment. 
B)  Rushia may record a recovery of $900,000. 
C)  Rushia may record a recovery of $700,000. 
D)  Rushia may record a recovery of $1,600,000.

Question 9

"Gains trading" or "cherry picking" involves

Accepted Answer

A)  moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity in order to avoid reporting losses. 
B)  reporting investment securities at fair value but liabilities at amortized cost. 
C)  selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition. 
D)  All of the above are considered methods of "gains trading" or "cherry picking." 
A)  moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity in order to avoid reporting losses. 
B)  reporting investment securities at fair value but liabilities at amortized cost. 
C)  selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition. 
D)  All of the above are considered methods of "gains trading" or "cherry picking."

Question 10

Debt securities that are accounted for at amortized cost, not fair value, are

Accepted Answer

A)  held-to-maturity debt securities. 
B)  trading debt securities. 
C)  available-for-sale debt securities. 
D)  never-sell debt securities. 
A)  held-to-maturity debt securities. 
B)  trading debt securities. 
C)  available-for-sale debt securities. 
D)  never-sell debt securities.

Question 11

On December 29, 2015, James Company sold an equity security that had been purchased on January 4, 2014. James owned no other equity securities. An unrealized holding loss was reported in the 2014 income statement. A realized gain was reported in the 2015 income statement. Was the equity security classified as available-for-sale and did its 2014 market price decline exceed its 2015 market price recovery?

Accepted Answer

The answer of On December 29, 2015, James Company sold...

Question 12

All of the following are characteristics of a derivative financial instrument except the instrument

Accepted Answer

A)  has one or more underlyings and an identified payment provision. 
B)  requires a large investment at the inception of the contract. 
C)  requires or permits net settlement. 
D)  All of these are characteristics. 
A)  has one or more underlyings and an identified payment provision. 
B)  requires a large investment at the inception of the contract. 
C)  requires or permits net settlement. 
D)  All of these are characteristics.

Question 13

The fair value option allows a company to

Accepted Answer

A)  value its own liabilities at fair value. 
B)  record income when the fair value of its bonds increases. 
C)  report most financial instruments at fair value at any point of time. 
D)  All of the above are true of the fair value option. 
A)  value its own liabilities at fair value. 
B)  record income when the fair value of its bonds increases. 
C)  report most financial instruments at fair value at any point of time. 
D)  All of the above are true of the fair value option.

Question 14

A requirement for a security to be classified as held-to-maturity is

Accepted Answer

A)  ability to hold the security to maturity. 
B)  positive intent. 
C)  the security must be a debt security. 
D)  All of these are required. 
A)  ability to hold the security to maturity. 
B)  positive intent. 
C)  the security must be a debt security. 
D)  All of these are required.

Question 15

Use the following information for questions 93 and 94.
On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio:  
-What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015?

Accepted Answer

A)  $35,000. 
B)  $25,000. 
C)  $15,000. 
D)  $0. 
A)  $35,000. 
B)  $25,000. 
C)  $15,000. 
D)  $0.

Question 16

Under IFRS, both the investor and the investee should follow the same accounting practices, requiring adjustments be made to the investor's books in order to prepare financial information.

Accepted Answer

A) True 
 B)False

Question 17

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Accepted Answer

The answer of Santo Corporation declares and distributes a cash...

Question 18

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

Accepted Answer

A)  a reduction of the carrying value of the investment. 
B)  additional paid-in capital. 
C)  an addition to the carrying value of the investment. 
D)  dividend income. 
A)  a reduction of the carrying value of the investment. 
B)  additional paid-in capital. 
C)  an addition to the carrying value of the investment. 
D)  dividend income.

Question 19

Use the following information for questions 108 and 109.
Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000.
-Tracy should report investment revenue for 2015 of

Accepted Answer

A)  $40,000. 
B)  $80,000. 
C)  $100,000. 
D)  $120,000. 
A)  $40,000. 
B)  $80,000. 
C)  $100,000. 
D)  $120,000.

Question 20

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Accepted Answer

The answer of An investor has a long-term investment in...

Match the approach and location where gains and losses from available-for-sale securities are reported:

If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.

Unrealized holding gains or losses which are recognized in income are from securities classified as

Gains or losses on cash flow hedges are

Transfers between categories

"Gains trading" or "cherry picking" involves

Debt securities that are accounted for at amortized cost, not fair value, are

All of the following are characteristics of a derivative financial instrument except the instrument

The fair value option allows a company to

A requirement for a security to be classified as held-to-maturity is

Under IFRS, both the investor and the investee should follow the same accounting practices, requiring adjustments be made to the investor's books in order to prepare financial information.

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

Use the following information for questions 108 and 109. Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. -Tracy should report investment revenue for 2015 of

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters

Exam 17: Investments

Match the approach and location where gains and losses from available-for-sale securities are reported:

If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.

Unrealized holding gains or losses which are recognized in income are from securities classified as

Gains or losses on cash flow hedges are

Transfers between categories

"Gains trading" or "cherry picking" involves

Debt securities that are accounted for at amortized cost, not fair value, are

All of the following are characteristics of a derivative financial instrument except the instrument

The fair value option allows a company to

A requirement for a security to be classified as held-to-maturity is

Under IFRS, both the investor and the investee should follow the same accounting practices, requiring adjustments be made to the investor's books in order to prepare financial information.

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

Use the following information for questions 108 and 109. Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. -Tracy should report investment revenue for 2015 of

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters