Question 1

The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.

Accepted Answer

A) True 
 B)False

Question 2

The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment

Accepted Answer

A) is composed of common stock and it is the investor's intent to vote the common stock. 
B) ensures a source of supply of raw materials for the investor. 
C) enables the investor to exercise significant influence over the investee. 
D) is obtained by an exchange of stock for stock. 
A) is composed of common stock and it is the investor's intent to vote the common stock. 
B) ensures a source of supply of raw materials for the investor. 
C) enables the investor to exercise significant influence over the investee. 
D) is obtained by an exchange of stock for stock.

Question 3

A company may purchase a noncontrolling interest in another firm in a related industry

Accepted Answer

A) to house excess cash until needed. 
B) to generate earnings. 
C) for strategic reasons. 
D) for speculative reasons. 
A) to house excess cash until needed. 
B) to generate earnings. 
C) for strategic reasons. 
D) for speculative reasons.

Question 4

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash.
June 1 Received cash dividends of $2 per share on Horton stock.
Oct) 1 Sold 1,200 shares of Horton stock for $32,400.
The entry to record the purchase of the Horton stock would include a

Accepted Answer

A) debit to Stock Investments for $45,900. 
B) credit to Cash for $45,900. 
C) debit to Stock Investments for $51,000. 
D) debit to Investment Expense for $5,100. 
A) debit to Stock Investments for $45,900. 
B) credit to Cash for $45,900. 
C) debit to Stock Investments for $51,000. 
D) debit to Investment Expense for $5,100.

Question 5

A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

Accepted Answer

A) True 
 B)False

Question 6

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

Accepted Answer

A) the cost method. 
B) the equity method. 
C) the significant method. 
D) consolidated financial statements. 
A) the cost method. 
B) the equity method. 
C) the significant method. 
D) consolidated financial statements.

Question 7

Short-term investments are listed on the balance sheet immediately below

Accepted Answer

A) cash. 
B) inventory. 
C) accounts receivable. 
D) prepaid expenses. 
A) cash. 
B) inventory. 
C) accounts receivable. 
D) prepaid expenses.

Question 8

If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

Accepted Answer

A) allocated to expense on the date of acquisition. 
B) allocated to identifiable assets to the extent of their fair values, with any remainder allocated to goodwill. 
C) allocated to goodwill, with any remainder allocated to the identifiable assets. 
D) set up as a liability to the controlling interest. 
A) allocated to expense on the date of acquisition. 
B) allocated to identifiable assets to the extent of their fair values, with any remainder allocated to goodwill. 
C) allocated to goodwill, with any remainder allocated to the identifiable assets. 
D) set up as a liability to the controlling interest.

Question 9

In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Accepted Answer

A) True 
 B)False

Question 10

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash.
June 1 Received cash dividends of $3 per share on Horton stock.
Oct) 1 Sold 1,200 shares of Horton stock for $32,400.
The entry to record the receipt of the dividends on June 1 would include a

Accepted Answer

A) debit to Stock Investments for $6,000. 
B) credit to Dividend Revenue for $6,000. 
C) debit to Dividend Revenue for $6,000. 
D) credit to Stock Investments for $6,000. 
A) debit to Stock Investments for $6,000. 
B) credit to Dividend Revenue for $6,000. 
C) debit to Dividend Revenue for $6,000. 
D) credit to Stock Investments for $6,000.

Question 11

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2014 would include a credit to

Accepted Answer

A) Interest Receivable for $2,400. 
B) Interest Revenue for $4,800. 
C) Accrued Expense for $4,800. 
D) Interest Revenue for $2,400. 
A) Interest Receivable for $2,400. 
B) Interest Revenue for $4,800. 
C) Accrued Expense for $4,800. 
D) Interest Revenue for $2,400.

Question 12

The cost of debt investments includes each of the following except

Accepted Answer

A) brokerage fees. 
B) commissions. 
C) accrued interest. 
D) the price paid. 
A) brokerage fees. 
B) commissions. 
C) accrued interest. 
D) the price paid.

Question 13

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

Accepted Answer

A) an addition to an asset of $5,000 and a realized gain of $5,000. 
B) an addition to an asset of $5,000 and an unrealized gain of $5,000 in the stockholders' equity section. 
C) an addition to an asset of $5,000 in the current assets section and an unrealized gain of $5,000 in "Other revenues and gains." 
D) an addition to an asset of $5,000 in the current assets section and a realized gain of $5,000 in "Other revenues and gains." 
A) an addition to an asset of $5,000 and a realized gain of $5,000. 
B) an addition to an asset of $5,000 and an unrealized gain of $5,000 in the stockholders' equity section. 
C) an addition to an asset of $5,000 in the current assets section and an unrealized gain of $5,000 in "Other revenues and gains." 
D) an addition to an asset of $5,000 in the current assets section and a realized gain of $5,000 in "Other revenues and gains."

Question 14

At the end of its first year, the trading securities portfolio consisted of the following common stocks.   The unrealized loss to be recognized under the fair value method is

Accepted Answer

A) $2,000. 
B) $5,600. 
C) $2,100. 
D) $3,600. 
A) $2,000. 
B) $5,600. 
C) $2,100. 
D) $3,600.

Question 15

Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

Accepted Answer

A) True 
 B)False

Question 16

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

Accepted Answer

A) year. 
B) two years. 
C) year or operating cycle, whichever is shorter. 
D) year or operating cycle, whichever is longer. 
A) year. 
B) two years. 
C) year or operating cycle, whichever is shorter. 
D) year or operating cycle, whichever is longer.

Question 17

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 18

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Accepted Answer

A) True 
 B)False

Question 19

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company's investment in Lynn will increase by

Accepted Answer

A) $25,000. 
B) $40,000. 
C) $45,000. 
D) $35,000. 
A) $25,000. 
B) $40,000. 
C) $45,000. 
D) $35,000.

Question 20

A typical investment to house excess cash until needed is

Accepted Answer

A) stocks of companies in a related industry. 
B) debt securities. 
C) low-risk, highly liquid securities. 
D) stock securities. 
A) stocks of companies in a related industry. 
B) debt securities. 
C) low-risk, highly liquid securities. 
D) stock securities.

The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.

The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment

A company may purchase a noncontrolling interest in another firm in a related industry

A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

Short-term investments are listed on the balance sheet immediately below

If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2014 would include a credit to

The cost of debt investments includes each of the following except

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

At the end of its first year, the trading securities portfolio consisted of the following common stocks. The unrealized loss to be recognized under the fair value method is

Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company's investment in Lynn will increase by

A typical investment to house excess cash until needed is

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

The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.

The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment

A company may purchase a noncontrolling interest in another firm in a related industry

A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

Short-term investments are listed on the balance sheet immediately below

If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2014 would include a credit to

The cost of debt investments includes each of the following except

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

At the end of its first year, the trading securities portfolio consisted of the following common stocks. The unrealized loss to be recognized under the fair value method is

Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company's investment in Lynn will increase by

A typical investment to house excess cash until needed is

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