Question 1

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 2

Match between columns
                        Premises: Valuation allowance account.
Amount for which a security could be sold.
Ownership of more than 50% of another company's common stock.
Securities that may be sold in the future.
Investments that are not readily marketable and not intended to be converted into cash within the next year.
Financial statements that present the total assets and liabilities controlled by the parent and the total revenues and expenses of the subsidiary companies.
The Stock Investments account is adjusted for net income and dividends received.
A company that owns more than 50% of the common stock of another entity.
Entity whose stock is owned by the parent company.
An account that is reported in the stockholders' equity section.

Accepted Answer

The Answer of Available-for-sale securities and Subsidiary company and Equity is...

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

Cody Industries owns 35% of Macarthy Company. For the current year Macarthy reports net income of $250000 and declares and pays a $60000 cash dividend. Which of the following correctly presents the journal entries to record Cody's equity in Macarthy's net income and the receipt of dividends from Macarthy?

Accepted Answer

The answer of Cody Industries owns 35% of Macarthy Company....

Question 5

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 6

At the end of the first year of operations the total cost of the trading securities portfolio is $245000. Total fair value is $250000. The financial statements should show

Accepted Answer

A)  an addition to an asset of $5000 and a realized gain of $5000. 
B)  an addition to an asset of $5000 and an unrealized gain of $5000 in the stockholders' equity section. 
C)  an addition to an asset of $5000 in the current assets section and an unrealized gain of $5000 in "Other revenues and gains." 
D)  an addition to an asset of $5000 in the current assets section and a realized gain of $5000 in "Other revenues and gains." 
A)  an addition to an asset of $5000 and a realized gain of $5000. 
B)  an addition to an asset of $5000 and an unrealized gain of $5000 in the stockholders' equity section. 
C)  an addition to an asset of $5000 in the current assets section and an unrealized gain of $5000 in "Other revenues and gains." 
D)  an addition to an asset of $5000 in the current assets section and a realized gain of $5000 in "Other revenues and gains."

Question 7

If the cost of an available-for-sale security exceeds its fair value by $40000 the entry to recognize the loss

Accepted Answer

A)  is not required since the share prices will likely rebound in the long run. 
B)  will show a debit to an expense account. 
C)  will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet. 
D)  will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet. 
A)  is not required since the share prices will likely rebound in the long run. 
B)  will show a debit to an expense account. 
C)  will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet. 
D)  will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

Question 8

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

Accepted Answer

stockholde

Question 9

For accounting purposes the method used to account for long-term investments in common stock is determined by

Accepted Answer

A)  the amount paid for the stock by the investor. 
B)  the extent of an investor's influence on the operating and financial affairs of the investee. 
C)  whether the stock has paid dividends in past years. 
D)  whether the acquisition of the stock by the investor was "friendly" or "hostile." 
A)  the amount paid for the stock by the investor. 
B)  the extent of an investor's influence on the operating and financial affairs of the investee. 
C)  whether the stock has paid dividends in past years. 
D)  whether the acquisition of the stock by the investor was "friendly" or "hostile."

Question 10

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

Question 11

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 12

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 13

On January 5 2017 Grouse Company purchased the following stock securities as a long-term investment: 300 shares Bonter Corporation common stock for $\$ 4,500$.
500 shares Wane Corporation common stock for $\$ 10,000$.
800 shares Strauss Corporation common stock for $\$ 22,800$. Assume that Grouse Company cannot exercise significant influence over the activities of the investee companies and that the cost method is used to account for the investments.
On June 30 2017 Grouse Company received the following cash dividends: $\begin{array}{llr}
  \text { Bonter Corporation. } &\$2.00\text { per share}\
 \text { Wane Corporation  } &\$1.00\text { per share}\
 \text { Strauss Corporation } &\$1.50\text { per share}
\end{array}$
 On November 15 2017 Grouse Company sold 160 shares of Strauss Corporation common stock for $7200.
On December 31 2017 the fair value of the securities held by Grouse Company is as follows: $$\begin{array} { l c } 
&\underline{ \text { Per Share }} \
 \text { Bonter Corporation common stock } & \$ 10 \
\text { Wane Corporation common stock } & 16 \
\text { Strauss Corporation common stock } & 28
\end{array}$$ Instructions
Prepare the appropriate journal entries that Grouse Company should make on the following dates: January 5, 2017 
June 30, 2017 
November 15, 2017 
December 31, 2017

Accepted Answer

The answer of On January 5 2017 Grouse Company purchased...

Question 14

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

Question 15

Tempest Co. purchased 60 6% Urich Company bonds for $60000 cash. Interest is payable annually on January 1. If 30 of the securities are sold on January 1 for $32000 the entry would include a credit to Gain on Sale of Debt Investments for

Accepted Answer

A)  $1600. 
B)  $1750. 
C)  $1800. 
D)  $2000. 
A)  $1600. 
B)  $1750. 
C)  $1800. 
D)  $2000.

Question 16

Bay Company acquires 60 8% 5 year $1000 Community bonds on January 1 2017 for $60000. The journal entry to record this investment includes a debit to

Accepted Answer

A)  Debt Investments for $64800. 
B)  Debt Investments for $60000. 
C)  Cash for $60000. 
D)  Stock Investments for $60000. 
A)  Debt Investments for $64800. 
B)  Debt Investments for $60000. 
C)  Cash for $60000. 
D)  Stock Investments for $60000.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Cost of debt investments includes the price paid plus ______________

Accepted Answer

The answer of Cost of debt investments includes the price...

Question 19

Ban Co. purchased 50 5% Waylan Company bonds on January 1 2016 for $50500 cash. Interest is payable annually on January 1. The entry to record the December 31 2016 interest accrual would include a

Accepted Answer

A)  debit to Interest Receivable for $2500. 
B)  debit to Interest Revenue for $2500. 
C)  credit to Interest Revenue for $2525. 
D)  debit to Debt Investments for $2525. 
A)  debit to Interest Receivable for $2500. 
B)  debit to Interest Revenue for $2500. 
C)  credit to Interest Revenue for $2525. 
D)  debit to Debt Investments for $2525.

Question 20

Available-for-sale securities are classified as

Accepted Answer

A)  short-term investments only. 
B)  long-term investments only. 
C)  either short-term or long-term investments. 
D)  current assets only. 
A)  short-term investments only. 
B)  long-term investments only. 
C)  either short-term or long-term investments. 
D)  current assets only.

Exam 16: Investments

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

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

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.

At the end of the first year of operations the total cost of the trading securities portfolio is $245000. Total fair value is $250000. The financial statements should show

If the cost of an available-for-sale security exceeds its fair value by $40000 the entry to recognize the loss

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

For accounting purposes the method used to account for long-term investments in common stock is determined by

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

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

Under the equity method the investor records dividends received by crediting

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

Tempest Co. purchased 60 6% Urich Company bonds for $60000 cash. Interest is payable annually on January 1. If 30 of the securities are sold on January 1 for $32000 the entry would include a credit to Gain on Sale of Debt Investments for

Bay Company acquires 60 8% 5 year $1000 Community bonds on January 1 2017 for $60000. The journal entry to record this investment includes a debit to

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

Cost of debt investments includes the price paid plus ______________

Ban Co. purchased 50 5% Waylan Company bonds on January 1 2016 for $50500 cash. Interest is payable annually on January 1. The entry to record the December 31 2016 interest accrual would include a

Available-for-sale securities are classified as

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

Time Value of Money

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