Question 1

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.

Question 2

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year Lyte pays $20000 in dividends to Mize and reports $300000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

Accepted Answer

A)  $6000. 
B)  $90000. 
C)  $96000. 
D)  $10000. 
A)  $6000. 
B)  $90000. 
C)  $96000. 
D)  $10000.

Question 3

Under the equity method of accounting for long-term investments in common stock when a dividend is received from the investee company

Accepted Answer

A)  the Dividend Revenue account is credited. 
B)  the Stock Investments account is increased. 
C)  the Stock Investments account is decreased. 
D)  no entry is necessary. 
A)  the Dividend Revenue account is credited. 
B)  the Stock Investments account is increased. 
C)  the Stock Investments account is decreased. 
D)  no entry is necessary.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Bay Company acquires 60 8% 5 year $1000 Community bonds on January 1 2017 for $60000. Assume Community pays interest on January 1. The journal entry at December 31 2017 would include a credit to

Accepted Answer

A)  Interest Receivable for $2400. 
B)  Interest Receivable for $4800. 
C)  Accrued Expense for $4800. 
D)  Interest Revenue for $4800. 
A)  Interest Receivable for $2400. 
B)  Interest Receivable for $4800. 
C)  Accrued Expense for $4800. 
D)  Interest Revenue for $4800.

Question 6

Sue Garner is the daughter of Fred Garner the founder and president of Big Sky Enterprises. She has been working in various departments during school vacations throughout high school. She burst into the accounting department excitedly one morning. She said that the stock prices of several of the firm's available-for-sale securities are up and that her father said that the company had made over $10000 because of this jump in stock prices. She asks to see how the increase is recorded. It is a very busy time in the accounting department and so her question is deferred.
Required:
Prepare a brief note to answer Sue's question.

Accepted Answer

This communication c

Question 7

At the end of its first year the trading securities portfolio consisted of the following common stocks. $\begin{array}{lrr}
& \underline{\text { Cost }}& \underline{\text { Fair Value }}\
\text { Atrium Corporation } & \$ 46,500 & \$ 50,000 \
\text { Barnes Inc. } & 60,000 & 58,000 \
\text { Cantor Corporation } & \underline{80,000}& \underline{76,400} \
& \underline{ \$ 186,500} & \underline{ \$ 184,400}
\end{array}$ The unrealized loss to be recognized under the fair value method is

Accepted Answer

A)  $2000. 
B)  $5600. 
C)  $2100. 
D)  $3600. 
A)  $2000. 
B)  $5600. 
C)  $2100. 
D)  $3600.

Question 8

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)  stockholders' equity of the subsidiary. 
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)  stockholders' equity of the subsidiary.

Question 9

Revenue is recognized when cash dividends are received under

Accepted Answer

A)  the controlling interest method. 
B)  the cost method. 
C)  the equity method. 
D)  both the cost and equity methods. 
A)  the controlling interest method. 
B)  the cost method. 
C)  the equity method. 
D)  both the cost and equity methods.

Question 10

Yeloe Corporation sells 400 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $60 a share. Yeloe sold the shares for $40 a share. The entry to record the sale is a. 
$\begin{array}{llr}
  \text { Cash } &16,000\
 \text { Loss on Sale of Stock Investments } &8,000\
 \text { Stock Investments  } &&24,000
\end{array}$

b. 
$\begin{array}{llr}
  \text {Cash  } &24,000\
 \text { Gain on Sale of Stock Investments } &&8,000\
 \text {  Stock Investments } &&16,000
\end{array}$

c. 
$\begin{array}{llr}
  \text { Cash } &16,000\
 \text { Stock Investments  } &&6,000\
\end{array}$

d.
$\begin{array}{llr}
  \text {  Stock Investments } &16,000\
 \text { Loss on Sale of Stock Investments } &8,000\
 \text {Cash  } &&24,000
\end{array}$

Accepted Answer

The answer of Yeloe Corporation sells 400 shares of common...

Question 11

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2000 shares of Norton Company (10%) for $51000.
June 1 Received cash dividends of $2 per share on Horton stock.
Oct) 1 Sold 1200 shares of Horton stock for $33000 less brokerage fees of $600.
The entry to record the sale of the stock would include a

Accepted Answer

A)  debit to Cash for $32400. 
B)  credit to Gain on Sale of Stock Investments for $1200. 
C)  debit to Stock Investments for $30600. 
D)  credit to Gain on Sale of Stock Investments for $1800. 
A)  debit to Cash for $32400. 
B)  credit to Gain on Sale of Stock Investments for $1200. 
C)  debit to Stock Investments for $30600. 
D)  credit to Gain on Sale of Stock Investments for $1800.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

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 15

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 16

The Fair Value Adjustment account can only have a credit balance or a zero balance.

Accepted Answer

A) True 
 B)False

Question 17

The account Stock Investments is

Accepted Answer

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

Question 18

At December 31 2017 the trading securities portfolio held by the Darren Corporation consisted of the following investments:
1. 2000 shares of Temper common stock purchased for $42 per share.
2. 1500 shares of Logan common stock purchased for $50 per share.
At December 31 2017 the fair values per share were Temper $38 and Logan $54.
Instructions
(a) Prepare a schedule showing the cost and fair value of the portfolio at December 31 2017.
(b) Prepare the adjusting entry to report the portfolio at fair value at December 31 2017.

Accepted Answer

None

Question 19

At December 31 2017 Delta Inc. has these data on its security investments: $$\begin{array} { l r c } 
 \underline{\text { Security }} &  \underline{ \text { Cost } } & \underline{ \text { Fair Value 12/31/17 }} \
 \text { Trading } & \$ 140,000 & \$ 190,000 \
\text { Available-for-sale } & 137,000 & 122,000
\end{array}$$ If the available-for-sale securities are held as long-term investments which of the following will be recorded to adjust the securities to fair value? a. 
$\begin{array}{llr}
  \text { Securities } &35,000\
 \text {Unrealized Gain-Income  } &&35,000\
\end{array}$

b.
$\begin{array}{llr}
  \text { Unrealized Loss-Income } &15,000\
 \text {Securities  } &35,000\
 \text { Unrealized Gain-Income } &&50,000
\end{array}$

c. 
$\begin{array}{llr}
  \text { Fair Value Adjustment-Trading } &50,000\
 \text {  Unrealized Gain-Income} &&50,000\
 \text { Unrealized Gain or Loss-Equity } &15,000\
 \text {  Fair Value Adjustment-Available-for-Sale} &&15,000
\end{array}$

d. 
$\begin{array}{llr}
  \text { Unrealized Gain-Income } &50,000\
 \text { Fair Value Adjustment-Trading. } &&50,000\
 \text {Fair Value Adjustment-Available-for-Sale  } &15,000\
 \text { Unrealized Gain or Loss-Equity } &&15,000
\end{array}$

Accepted Answer

The answer of At December 31 2017 Delta Inc. has...

Question 20

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

Exam 16: Investments

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

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year Lyte pays $20000 in dividends to Mize and reports $300000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

Under the equity method of accounting for long-term investments in common stock when a dividend is received from the investee company

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

Bay Company acquires 60 8% 5 year $1000 Community bonds on January 1 2017 for $60000. Assume Community pays interest on January 1. The journal entry at December 31 2017 would include a credit to

At the end of its first year the trading securities portfolio consisted of the following common stocks. Atrium Corporation \ 46,500 \ 50,000 Barnes Inc. 60,000 58,000 Cantor Corporation The unrealized loss to be recognized under the fair value method is

Consolidated financial statements present all of the following except the

Revenue is recognized when cash dividends are received under

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

A typical investment to house excess cash until needed is

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

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

The Fair Value Adjustment account can only have a credit balance or a zero balance.

The account Stock Investments is

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

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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