Question 1

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Accepted Answer

A) True 
 B)False  True

Question 2

If the cost method is used to account for a long-term investment in common stock,

Accepted Answer

A) it is presumed that the investor has significant influence on the investee. 
B) the earning of net income by the investee is considered a proper basis for recognition of income by the investor. 
C) net income of the investee is not considered earned by the investor until dividends are declared by the investee. 
D) the Investment account may be, at times, greater than the acquisition cost. 
A) it is presumed that the investor has significant influence on the investee. 
B) the earning of net income by the investee is considered a proper basis for recognition of income by the investor. 
C) net income of the investee is not considered earned by the investor until dividends are declared by the investee. 
D) the Investment account may be, at times, greater than the acquisition cost. C

Question 3

At the end of its first year, the trading securities portfolio consisted of the following common stocks.   In the following year, the Barnes common stock is sold for cash proceeds of $57,000. The gain or loss to be recognized on the sale is a

Accepted Answer

A) gain of $1,200. 
B) loss of $3,000. 
C) Loss of $1,000. 
D) loss of $2,000. 
A) gain of $1,200. 
B) loss of $3,000. 
C) Loss of $1,000. 
D) loss of $2,000. B

Question 4

Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

Accepted Answer

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

Question 5

The account, Stock Investments, is

Accepted Answer

A) a subsidiary ledger account. 
B) a long-term liability account. 
C) a long-term investment account. 
D) another name for Debt Investments. 
A) a subsidiary ledger account. 
B) a long-term liability account. 
C) a long-term investment account. 
D) another name for Debt Investments.

Question 6

Reporting investments at fair value is

Accepted Answer

A) applicable to stock securities only. 
B) applicable to debt securities only. 
C) applicable to both debt and stock securities. 
D) a conservative approach because only losses are recognized. 
A) applicable to stock securities only. 
B) applicable to debt securities only. 
C) applicable to both debt and stock securities. 
D) a conservative approach because only losses are recognized.

Question 7

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year, Lyte pays $20,000 in dividends to Mize, and reports $300,000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

Accepted Answer

A) $6,000. 
B) $90,000. 
C) $96,000. 
D) $10,000. 
A) $6,000. 
B) $90,000. 
C) $96,000. 
D) $10,000.

Question 8

An investment is readily marketable if it is management's intent to sell the investment.

Accepted Answer

A) True 
 B)False

Question 9

Unrealized gains and losses related to available-for-sale/non-trading equity investments are reported in other comprehensive income under

Accepted Answer

A) GAAP only. 
B) IFRS only. 
C) Both GAAP and IFRS. 
D) Neither GAAP or IFRS. 
A) GAAP only. 
B) IFRS only. 
C) Both GAAP and IFRS. 
D) Neither GAAP or IFRS.

Question 10

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

Accepted Answer

A) True 
 B)False

Question 11

For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.

Accepted Answer

A) True 
 B)False

Question 12

Debt investments are recorded at the

Accepted Answer

A) face value of the bonds purchased. 
B) face value of the bonds purchased plus interest. 
C) price paid for the bonds plus interest. 
D) price paid for the bonds plus brokerage fees. 
A) face value of the bonds purchased. 
B) face value of the bonds purchased plus interest. 
C) price paid for the bonds plus interest. 
D) price paid for the bonds plus brokerage fees.

Question 13

The Fair Value Adjustment account

Accepted Answer

A) is set up for each security in the company's portfolio. 
B) relates to the entire portfolio of securities held by the company. 
C) is closed at the end of each accounting period. 
D) appears on the income statement as Other Expenses and Losses. 
A) is set up for each security in the company's portfolio. 
B) relates to the entire portfolio of securities held by the company. 
C) is closed at the end of each accounting period. 
D) appears on the income statement as Other Expenses and Losses.

Question 14

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

Accepted Answer

A) less than 20% 
B) between 20% and 50% 
C) less than 50% 
D) more than 50% 
A) less than 20% 
B) between 20% and 50% 
C) less than 50% 
D) more than 50%

Question 15

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Accepted Answer

A) has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B) should apply the cost method in accounting for the investment. 
C) will prepare consolidated financial statements. 
D) has significant influence on the investee and that the equity method should be used to account for the investment. 
A) has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B) should apply the cost method in accounting for the investment. 
C) will prepare consolidated financial statements. 
D) has significant influence on the investee and that the equity method should be used to account for the investment.

Question 16

An unrealized loss on available-for-sale securities is

Accepted Answer

A) reported under Other Expenses and Losses in the income statement. 
B) closed-out at the end of the accounting period. 
C) reported as a separate component of stockholders' equity. 
D) deducted from the cost of the investment. 
A) reported under Other Expenses and Losses in the income statement. 
B) closed-out at the end of the accounting period. 
C) reported as a separate component of stockholders' equity. 
D) deducted from the cost of the investment.

Question 17

Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders' equity?

Accepted Answer

A) $7,200,000 
B) $7,400,000 
C) $7,300,000 
D) $7,500,000 
A) $7,200,000 
B) $7,400,000 
C) $7,300,000 
D) $7,500,000

Question 18

Which of the following would not be classified as a short-term investment?

Accepted Answer

A) Short-term commercial paper 
B) Idle cash in a bank checking account 
C) Marketable stock securities 
D) Marketable debt securities 
A) Short-term commercial paper 
B) Idle cash in a bank checking account 
C) Marketable stock securities 
D) Marketable debt securities

Question 19

Stocks traded on the New York Stock Exchange are considered readily marketable.

Accepted Answer

A) True 
 B)False

Question 20

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Accepted Answer

A) True 
 B)False

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

If the cost method is used to account for a long-term investment in common stock,

At the end of its first year, the trading securities portfolio consisted of the following common stocks. In the following year, the Barnes common stock is sold for cash proceeds of $57,000. The gain or loss to be recognized on the sale is a

Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

The account, Stock Investments, is

Reporting investments at fair value is

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year, Lyte pays $20,000 in dividends to Mize, and reports $300,000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

An investment is readily marketable if it is management's intent to sell the investment.

Unrealized gains and losses related to available-for-sale/non-trading equity investments are reported in other comprehensive income under

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.

Debt investments are recorded at the

The Fair Value Adjustment account

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

An unrealized loss on available-for-sale securities is

Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders' equity?

Which of the following would not be classified as a short-term investment?

Stocks traded on the New York Stock Exchange are considered readily marketable.

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

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Exam 12: Investments

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

If the cost method is used to account for a long-term investment in common stock,

At the end of its first year, the trading securities portfolio consisted of the following common stocks. In the following year, the Barnes common stock is sold for cash proceeds of $57,000. The gain or loss to be recognized on the sale is a

Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

The account, Stock Investments, is

Reporting investments at fair value is

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year, Lyte pays $20,000 in dividends to Mize, and reports $300,000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

An investment is readily marketable if it is management's intent to sell the investment.

Unrealized gains and losses related to available-for-sale/non-trading equity investments are reported in other comprehensive income under

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.

Debt investments are recorded at the

The Fair Value Adjustment account

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

An unrealized loss on available-for-sale securities is

Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders' equity?

Which of the following would not be classified as a short-term investment?

Stocks traded on the New York Stock Exchange are considered readily marketable.

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Filters