Question 1

At the time of acquisition of a debt investment,

Accepted Answer

A) no journal entry is required. 
B) the historical cost principle applies. 
C) the Stock Investments account is debited when bonds are purchased. 
D) the Investment account is credited for its cost plus brokerage fees. 
A) no journal entry is required. 
B) the historical cost principle applies. 
C) the Stock Investments account is debited when bonds are purchased. 
D) the Investment account is credited for its cost plus brokerage fees.

Question 2

"Intent to convert" does not include an investment used as a resource that will be used whenever the need for cash arises.

Accepted Answer

A) True 
 B)False

Question 3

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 4

Debt investments that are held to maturity are recorded at

Accepted Answer

A) amortized cost. 
B) fair value. 
C) original cost. 
D) maturity value. 
A) amortized cost. 
B) fair value. 
C) original cost. 
D) maturity value.

Question 5

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

Accepted Answer

A) True 
 B)False

Question 6

In accounting for debt investments, entries are made for each of the following except the

Accepted Answer

A) acquisition. 
B) interest revenue. 
C) sale. 
D) entries are made for each answer choice. 
A) acquisition. 
B) interest revenue. 
C) sale. 
D) entries are made for each answer choice.

Question 7

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Accepted Answer

A) debit to Interest Receivable for $1,250. 
B) credit to Interest Revenue for $1,250. 
C) credit to Interest Revenue for $1,262.50. 
D) credit to Debt Investments for $1,262.50. 
A) debit to Interest Receivable for $1,250. 
B) credit to Interest Revenue for $1,250. 
C) credit to Interest Revenue for $1,262.50. 
D) credit to Debt Investments for $1,262.50.

Question 8

Short-term stock investments should be valued on the balance sheet at

Accepted Answer

A) the lower of cost or fair value. 
B) the higher of cost or fair value. 
C) cost. 
D) fair value. 
A) the lower of cost or fair value. 
B) the higher of cost or fair value. 
C) cost. 
D) fair value.

Question 9

The accounting for short-term debt investments and for long-term debt investments is similar.

Accepted Answer

A) True 
 B)False

Question 10

The company whose stock is owned by the parent company is called the

Accepted Answer

A) controlled company. 
B) subsidiary company. 
C) investee company. 
D) sibling company. 
A) controlled company. 
B) subsidiary company. 
C) investee company. 
D) sibling company.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If the equity method is being used, the Revenue from Stock Investments account is

Accepted Answer

A) just another name for a Dividend Revenue account. 
B) credited when dividends are declared by the investee. 
C) credited when net income is reported by the investee. 
D) debited when dividends are declared by the investee. 
A) just another name for a Dividend Revenue account. 
B) credited when dividends are declared by the investee. 
C) credited when net income is reported by the investee. 
D) debited when dividends are declared by the investee.

Question 13

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

Accepted Answer

A) debit to Interest Receivable for $1,250. 
B) debit to Interest Revenue for $1,250. 
C) credit to Interest Revenue for $1,262.50. 
D) debit to Debt Investments for $1,262.50. 
A) debit to Interest Receivable for $1,250. 
B) debit to Interest Revenue for $1,250. 
C) credit to Interest Revenue for $1,262.50. 
D) debit to Debt Investments for $1,262.50.

Question 14

When a company owns more than 50% of the common stock of another company,

Accepted Answer

A) affiliated financial statements are prepared. 
B) consolidated financial statements are prepared. 
C) controlling financial statements are prepared. 
D) significant financial statements are prepared. 
A) affiliated financial statements are prepared. 
B) consolidated financial statements are prepared. 
C) controlling financial statements are prepared. 
D) significant financial statements are prepared.

Question 15

If the equity method is being used, cash dividends received

Accepted Answer

A) are credited to Dividend Revenue. 
B) require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C) are credited to the Stock Investments account. 
D) are credited to the Revenue from Stock Investments account. 
A) are credited to Dividend Revenue. 
B) require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C) are credited to the Stock Investments account. 
D) are credited to the Revenue from Stock Investments account.

Question 16

The balance sheet presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of

Accepted Answer

A) treasury stock. 
B) discount on bonds payable. 
C) allowance for doubtful accounts. 
D) prepaid expenses. 
A) treasury stock. 
B) discount on bonds payable. 
C) allowance for doubtful accounts. 
D) prepaid expenses.

Question 17

Short-term investments are

Accepted Answer

A) (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is shorter. 
B) (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer. 
C) (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer. 
D) (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter. 
A) (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is shorter. 
B) (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer. 
C) (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer. 
D) (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter.

Question 18

If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

Accepted Answer

A) True 
 B)False

Question 19

Corporations invest excess cash for short periods of time in each of the following except

Accepted Answer

A) equity securities. 
B) highly liquid securities. 
C) low-risk securities. 
D) government securities. 
A) equity securities. 
B) highly liquid securities. 
C) low-risk securities. 
D) government securities.

Question 20

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Norton Company (10%) for $51,000.
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 sale of the stock would include a

Accepted Answer

A) debit to Cash for $30,600. 
B) credit to Gain on Sale of Stock Investments for $1,200. 
C) debit to Stock Investments for $30,600. 
D) credit to Gain on Sale of Stock Investments for $1,800. 
A) debit to Cash for $30,600. 
B) credit to Gain on Sale of Stock Investments for $1,200. 
C) debit to Stock Investments for $30,600. 
D) credit to Gain on Sale of Stock Investments for $1,800.

At the time of acquisition of a debt investment,

"Intent to convert" does not include an investment used as a resource that will be used whenever the need for cash arises.

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Debt investments that are held to maturity are recorded at

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

In accounting for debt investments, entries are made for each of the following except the

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Short-term stock investments should be valued on the balance sheet at

The accounting for short-term debt investments and for long-term debt investments is similar.

The company whose stock is owned by the parent company is called the

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

If the equity method is being used, the Revenue from Stock Investments account is

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

When a company owns more than 50% of the common stock of another company,

If the equity method is being used, cash dividends received

The balance sheet presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of

Short-term investments are

If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

Corporations invest excess cash for short periods of time in each of the following except

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

Exam 12: Investments

At the time of acquisition of a debt investment,

"Intent to convert" does not include an investment used as a resource that will be used whenever the need for cash arises.

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Debt investments that are held to maturity are recorded at

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

In accounting for debt investments, entries are made for each of the following except the

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Short-term stock investments should be valued on the balance sheet at

The accounting for short-term debt investments and for long-term debt investments is similar.

The company whose stock is owned by the parent company is called the

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

If the equity method is being used, the Revenue from Stock Investments account is

Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

When a company owns more than 50% of the common stock of another company,

If the equity method is being used, cash dividends received

The balance sheet presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of

Short-term investments are

If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

Corporations invest excess cash for short periods of time in each of the following except

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