Question 1

Under the equity method the investment in common stock is initially recorded at cost and the Stock Investments account is adjusted annually.

Accepted Answer

A) True 
 B)False

Question 2

_______________ securities are bought and held primarily for sale in the near future.

Accepted Answer

The answer of _______________ securities are bought and held primarily...

Question 3

Corporations invest in other companies for all of the following reasons except to

Accepted Answer

A)  house excess cash until needed. 
B)  generate earnings. 
C)  meet strategic goals. 
D)  increase trading of the other companies' stock. 
A)  house excess cash until needed. 
B)  generate earnings. 
C)  meet strategic goals. 
D)  increase trading of the other companies' stock.

Question 4

When an investor owns between 20% and 50% of the common stock of a corporation it is generally presumed that the investor

Accepted Answer

A)  has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B)  should apply the cost method in accounting for the investment. 
C)  will prepare consolidated financial statements. 
D)  has significant influence on the investee and that the equity method should be used to account for the investment. 
A)  has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B)  should apply the cost method in accounting for the investment. 
C)  will prepare consolidated financial statements. 
D)  has significant influence on the investee and that the equity method should be used to account for the investment.

Question 5

In accounting for stock investments between 20% and 50% the _______ method is used.

Accepted Answer

A)  consolidated statements 
B)  controlling interest 
C)  cost 
D)  equity 
A)  consolidated statements 
B)  controlling interest 
C)  cost 
D)  equity

Question 6

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 7

At January 1 2017 Grand Corporation held one available-for-sale security: 1500 shares of Nettle common stock purchased for $40 per share. At December 31 2017 the fair value per share for Nettle was $42. Prepare the adjusting entry to report the portfolio at fair value at December 31 2017.

Accepted Answer

None

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

On January 1 Oetry Corporation purchased a 35% equity in Selig Company for $190000. At December 31 Selig declared and paid a $50000 cash dividend and reported net income of $80000.
Instructions
Prepare the necessary journal entries for Oetry Corporation.

Accepted Answer

The answer of On January 1 Oetry Corporation purchased a...

Question 10

If one company owns more than 50% of the common stock of another company

Accepted Answer

A)  the cost method should be used to account for the investment. 
B)  a partnership exists. 
C)  a parent-subsidiary relationship exists. 
D)  the company whose stock is owned must be liquidated. 
A)  the cost method should be used to account for the investment. 
B)  a partnership exists. 
C)  a parent-subsidiary relationship exists. 
D)  the company whose stock is owned must be liquidated.

Question 11

Which of the following would not be classified as a short-term investment?

Accepted Answer

A)  Short-term commercial paper 
B)  Idle cash in a bank checking account 
C)  Marketable stock securities 
D)  Marketable debt securities 
A)  Short-term commercial paper 
B)  Idle cash in a bank checking account 
C)  Marketable stock securities 
D)  Marketable debt securities

Question 12

Corporations purchase investments in debt or stock securities generally for one of two reasons.

Accepted Answer

A) True 
 B)False

Question 13

Maxim Corporation had the following transactions pertaining to debt investments.
Jan. 1 Purchased 80 8% $1000 Woodrow Company bonds for $80000.
July 1 Sold 20 Woodrow Company bonds for $21500.
Instructions
Prepare journal entries for the purchase and sale of the Woodrow Company bonds.

Accepted Answer

None

Question 14

At December 31 2017 the available-for-sale securities for Allison Inc. are as follows. $\begin{array}{lrr}
 \underline{\text { Security }} & \underline{ \text { Cost }}& \underline{ \text { Fair Value }}\
\text {X} & \$ 27,500 & \$ 24,000 \
\text {Y }& 12,500 & 13,000 \
\text {Z} & \underline{23,000} & \underline{18,000} \
&\underline{ \$ 63,000} &\underline{ \$ 55,000}
\end{array}$  Instructions
(a) Prepare the adjusting entry at December 31 2017 to report the securities at fair value.
(b) Show the balance sheet and income statement presentation at December 31 2017 after adjustment to fair value. The securities are considered to be a long-term investment.

Accepted Answer

The answer of At December 31 2017 the available-for-sale securities...

Question 15

On January 1 2017 Gene Corp. paid $800000 for 100000 shares of Onofine Company's common stock which represents 30% of Onofine's outstanding common stock. Onofine reported net income of $200000 and paid cash dividends of $60000 during 2017. Gene should report the investment in Onofine Company on its December 31 2017 balance sheet at:

Accepted Answer

A)  $800000 
B)  $758000 
C)  $818000 
D)  $842000 
A)  $800000 
B)  $758000 
C)  $818000 
D)  $842000

Question 16

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Accepted Answer

A)  Unrealized gain on available-for-sale securities 
B)  Dividend revenue 
C)  Interest revenue 
D)  Gain on sale of short-term debt investments 
A)  Unrealized gain on available-for-sale securities 
B)  Dividend revenue 
C)  Interest revenue 
D)  Gain on sale of short-term debt investments

Question 17

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments? $\begin{array}{llcc}
 \underline{  \text {$ \% $ of Investor Ownership  }} &  \underline{ \text { Accounting Guidelines }} \
\end{array}$
A)$\begin{array}{ll}
\text { Less than } 20 \% &&&&& \text { Cost method } \\end{array}$
B)$\begin{array}{ll}\text { Between } 20 \%-50 \% && \text { Cost method } \\end{array}$
C)$\begin{array}{ll}\text { More than } 50 \% &&&& \text { Cost or equity method } \\end{array}$
D)$\begin{array}{ll}\text { Between } 20 \%-50 \% && \text { Consolidated financial statements }
\end{array}$

Accepted Answer

The answer of Which of the following is the correct...

Question 18

The cost method of accounting for long-term investments in stock should be employed when the

Accepted Answer

A)  investor owns more than 50% of the investee's stock. 
B)  investor has significant influence on the investee and the stock held by the investor are marketable equity securities. 
C)  market value of the shares held is greater than their historical cost. 
D)  investor's influence on the investee is insignificant. 
A)  investor owns more than 50% of the investee's stock. 
B)  investor has significant influence on the investee and the stock held by the investor are marketable equity securities. 
C)  market value of the shares held is greater than their historical cost. 
D)  investor's influence on the investee is insignificant.

Question 19

On January 1 Jarret Corporation purchased a 35% equity in Dorman Corporation for $220000. At December 31 Dorman declared and paid a $60000 cash dividend and reported net income of $200000.
Instructions
(a) Journalize the transactions.
(b) Determine the amount to be reported as an investment in Dorman stock at December 31.

Accepted Answer

The answer of On January 1 Jarret Corporation purchased a...

Question 20

Viejo Inc. earns $450000 and pays cash dividends of $150000 during 2017. Cruz Corporation owns 73500 of the 210000 outstanding shares of Viejo. How much revenue from investment should Viejo report in 2017?

Accepted Answer

A)  $52500 
B)  $105000 
C)  $157500 
D)  $210000 
A)  $52500 
B)  $105000 
C)  $157500 
D)  $210000

Exam 16: Investments

Under the equity method the investment in common stock is initially recorded at cost and the Stock Investments account is adjusted annually.

_______________ securities are bought and held primarily for sale in the near future.

Corporations invest in other companies for all of the following reasons except to

When an investor owns between 20% and 50% of the common stock of a corporation it is generally presumed that the investor

In accounting for stock investments between 20% and 50% the _______ method is used.

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

At January 1 2017 Grand Corporation held one available-for-sale security: 1500 shares of Nettle common stock purchased for $40 per share. At December 31 2017 the fair value per share for Nettle was $42. Prepare the adjusting entry to report the portfolio at fair value at December 31 2017.

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

On January 1 Oetry Corporation purchased a 35% equity in Selig Company for $190000. At December 31 Selig declared and paid a $50000 cash dividend and reported net income of $80000. Instructions Prepare the necessary journal entries for Oetry Corporation.

If one company owns more than 50% of the common stock of another company

Which of the following would not be classified as a short-term investment?

Corporations purchase investments in debt or stock securities generally for one of two reasons.

Maxim Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 80 8% $1000 Woodrow Company bonds for $80000. July 1 Sold 20 Woodrow Company bonds for $21500. Instructions Prepare journal entries for the purchase and sale of the Woodrow Company bonds.

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments? A) Less than 20\% Cost method B) Between 20\%-50\% Cost method C) More than 50\% Cost or equity method D) Between 20\%-50\% Consolidated financial statements

The cost method of accounting for long-term investments in stock should be employed when the

Viejo Inc. earns $450000 and pays cash dividends of $150000 during 2017. Cruz Corporation owns 73500 of the 210000 outstanding shares of Viejo. How much revenue from investment should Viejo report in 2017?

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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