Question 1

Under the equity method, the investor records dividends received by crediting

Accepted Answer

A) Dividend Revenue. 
B) Investment Income. 
C) Revenue from Investment. 
D) Stock Investments. 
A) Dividend Revenue. 
B) Investment Income. 
C) Revenue from Investment. 
D) Stock Investments.

Question 2

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

Accepted Answer

A) True 
 B)False

Question 3

Short-term investments are securities held by a company that are

Accepted Answer

A) readily marketable. 
B) intended to be converted into cash within the next year. 
C) readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer. 
D) readily marketable and intended to be held until maturity. 
A) readily marketable. 
B) intended to be converted into cash within the next year. 
C) readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer. 
D) readily marketable and intended to be held until maturity.

Question 4

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

Accepted Answer

A) credited to the Stock Investments account. 
B) credited to the Dividend Revenue account. 
C) debited to the Stock Investments account. 
D) recorded only when 20% or more of the stock is owned. 
A) credited to the Stock Investments account. 
B) credited to the Dividend Revenue account. 
C) debited to the Stock Investments account. 
D) recorded only when 20% or more of the stock is owned.

Question 5

When preparing a consolidated income statement,

Accepted Answer

A) only the revenues and expenses of the parent company are presented. 
B) the income from partially owned subsidiaries is excluded. 
C) all revenue and expense transactions between the parent and subsidiaries must be eliminated. 
D) intercompany transactions between affiliated companies do not have to be eliminated. 
A) only the revenues and expenses of the parent company are presented. 
B) the income from partially owned subsidiaries is excluded. 
C) all revenue and expense transactions between the parent and subsidiaries must be eliminated. 
D) intercompany transactions between affiliated companies do not have to be eliminated.

Question 6

The consolidated worksheet shows Excess of Cost Over Book Value of Subsidiary of $210,000. Management of the parent company determines that the market values for subsidiary company plant assets are $90,000 higher than book values. In the consolidated balance sheet, goodwill will be reported at

Accepted Answer

A) $210,000. 
B) $120,000. 
C) $90,000. 
D) $0. 
A) $210,000. 
B) $120,000. 
C) $90,000. 
D) $0.

Question 7

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Accepted Answer

A) True 
 B)False

Question 8

Changes from cost are reported as part of net income for

Accepted Answer

A) available-for-sale securities. 
B) held-to-maturity securities. 
C) debt securities. 
D) trading securities. 
A) available-for-sale securities. 
B) held-to-maturity securities. 
C) debt securities. 
D) trading securities.

Question 9

All of the following statements about short-term investments are true except:

Accepted Answer

A) Short-term investments are also called marketable securities 
B) Trading securities are always classified as short-term investments. 
C) Short-term investments are listed below accounts receivable in the current asset section of the balance sheet. 
D) Short-term assets must be readily marketable. 
A) Short-term investments are also called marketable securities 
B) Trading securities are always classified as short-term investments. 
C) Short-term investments are listed below accounts receivable in the current asset section of the balance sheet. 
D) Short-term assets must be readily marketable.

Question 10

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. The journal entry to record this investment includes a debit to

Accepted Answer

A) Debt Investments for $64,800. 
B) Debt Investments for $60,000. 
C) Cash for $60,000. 
D) Stock Investments for $60,000. 
A) Debt Investments for $64,800. 
B) Debt Investments for $60,000. 
C) Cash for $60,000. 
D) Stock Investments for $60,000.

Question 11

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

Accepted Answer

A) True 
 B)False

Question 12

At December 31, 2014, the trading securities for Saddle, Inc. are as follows:   Saddle should report the following amount related to the securities in its 2014 income statement:

Accepted Answer

A) $4,000 gain 
B) $7,000 realized loss. 
C) $7,000 unrealized loss. 
D) $11,000 unrealized loss. 
A) $4,000 gain 
B) $7,000 realized loss. 
C) $7,000 unrealized loss. 
D) $11,000 unrealized loss.

Question 13

If a company acquires a 40% common stock interest in another company,

Accepted Answer

A) the equity method is usually applicable. 
B) all influence is classified as controlling. 
C) the cost method is usually applicable. 
D) the ability to exert significant influence over the activities of the investee does not exist. 
A) the equity method is usually applicable. 
B) all influence is classified as controlling. 
C) the cost method is usually applicable. 
D) the ability to exert significant influence over the activities of the investee does not exist.

Question 14

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 15

When bonds are sold, the gain or loss on sale is the difference between the

Accepted Answer

A) sales price and the cost of the bonds. 
B) net proceeds and the cost of the bonds. 
C) sales price and the market value of the bonds. 
D) net proceeds and the market value of the bonds. 
A) sales price and the cost of the bonds. 
B) net proceeds and the cost of the bonds. 
C) sales price and the market value of the bonds. 
D) net proceeds and the market value of the bonds.

Question 16

Consolidated financial statements present all of the following except the

Accepted Answer

A) individual assets and liabilities of the parent company 
B) individual assets and liabilities of the subsidiary. 
C) total revenues and expenses of the subsidiary. 
D) All of these are presented in consolidated financial statements. 
A) individual assets and liabilities of the parent company 
B) individual assets and liabilities of the subsidiary. 
C) total revenues and expenses of the subsidiary. 
D) All of these are presented in consolidated financial statements.

Question 17

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

Accepted Answer

A) the equity method of accounting for the investment should be employed. 
B) no dividends can be expected. 
C) it is presumed that the investor has relatively little influence on the investee. 
D) it is presumed that the investor has significant influence on the investee. 
A) the equity method of accounting for the investment should be employed. 
B) no dividends can be expected. 
C) it is presumed that the investor has relatively little influence on the investee. 
D) it is presumed that the investor has significant influence on the investee.

Question 18

The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.

Accepted Answer

A) True 
 B)False

Question 19

A company that owns more than 50% of the common stock of another company is known as the

Accepted Answer

A) charge company. 
B) subsidiary company. 
C) parent company. 
D) management company. 
A) charge company. 
B) subsidiary company. 
C) parent company. 
D) management company.

Question 20

Which of the following would not be considered a motive for making a stock investment in another corporation?

Accepted Answer

A) Appreciation in the market value of the stock investment 
B) Use of the investment for expanding its own operations 
C) Use of the investment to diversify its own operations 
D) An increase in the amount of interest revenue from the stock investment 
A) Appreciation in the market value of the stock investment 
B) Use of the investment for expanding its own operations 
C) Use of the investment to diversify its own operations 
D) An increase in the amount of interest revenue from the stock investment

Under the equity method, the investor records dividends received by crediting

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

Short-term investments are securities held by a company that are

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

When preparing a consolidated income statement,

The consolidated worksheet shows Excess of Cost Over Book Value of Subsidiary of $210,000. Management of the parent company determines that the market values for subsidiary company plant assets are $90,000 higher than book values. In the consolidated balance sheet, goodwill will be reported at

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Changes from cost are reported as part of net income for

All of the following statements about short-term investments are true except:

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. The journal entry to record this investment includes a debit to

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

At December 31, 2014, the trading securities for Saddle, Inc. are as follows: Saddle should report the following amount related to the securities in its 2014 income statement:

If a company acquires a 40% common stock interest in another company,

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

When bonds are sold, the gain or loss on sale is the difference between the

Consolidated financial statements present all of the following except the

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.

A company that owns more than 50% of the common stock of another company is known as the

Which of the following would not be considered a motive for making a stock investment in another corporation?

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

Under the equity method, the investor records dividends received by crediting

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

Short-term investments are securities held by a company that are

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

When preparing a consolidated income statement,

The consolidated worksheet shows Excess of Cost Over Book Value of Subsidiary of $210,000. Management of the parent company determines that the market values for subsidiary company plant assets are $90,000 higher than book values. In the consolidated balance sheet, goodwill will be reported at

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Changes from cost are reported as part of net income for

All of the following statements about short-term investments are true except:

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. The journal entry to record this investment includes a debit to

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

At December 31, 2014, the trading securities for Saddle, Inc. are as follows: Saddle should report the following amount related to the securities in its 2014 income statement:

If a company acquires a 40% common stock interest in another company,

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

When bonds are sold, the gain or loss on sale is the difference between the

Consolidated financial statements present all of the following except the

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.

A company that owns more than 50% of the common stock of another company is known as the

Which of the following would not be considered a motive for making a stock investment in another corporation?

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