Question 1

When debt investments are sold the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds.

Accepted Answer

A) True 
 B)False

Question 2

An unrealized loss on trading securities is reported under Other ____________________ on the income statement.

Accepted Answer

The answer of An unrealized loss on trading securities is...

Question 3

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 4

If a parent company has two wholly owned subsidiaries how many legal and economic entities are there from the viewpoint of the shareholders of the parent company? $\begin{array}{ll}
   \underline{\text {  Legal }} &  \underline{ \text { Economic  }} \
\end{array}$
A)$\begin{array}{ll}
3 &&&& 3 \\end{array}$
B)$\begin{array}{ll}1 &&&& 2 \\end{array}$
C)$\begin{array}{ll}3 & &&&1 \\end{array}$
D)$\begin{array}{ll}2 &&&& 1
\end{array}$

Accepted Answer

The answer of If a parent company has two wholly...

Question 5

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

Accepted Answer

A)  Marketable stock securities 
B)  Equity method investments 
C)  Marketable debt securities 
D)  Short-term paper 
A)  Marketable stock securities 
B)  Equity method investments 
C)  Marketable debt securities 
D)  Short-term paper

Question 6

Quagle Company had the following transactions pertaining to debt investments.
2017
Jan. 1 Purchased 40 8% $1000 Steve Company bonds for $40000 cash. Interest is payable annually on January 1.
Dec. 31 Accrued annual interest on Steve Company bonds.
2018
Jan. 1 Received interest from Steve Company bonds.
Jan. 1 Sold 24 Steve Company bonds for $26000.
Instructions
Journalize the transactions.

Accepted Answer

The answer of Quagle Company had the following transactions pertaining...

Question 7

If a short-term debt investment is sold the Investment account is

Accepted Answer

A)  debited for the fair value of the bonds at the sale date. 
B)  credited for the cost of the bonds at the sale date. 
C)  credited for the fair value of the bonds at the sale date. 
D)  debited for the cost of the bonds at the sale date. 
A)  debited for the fair value of the bonds at the sale date. 
B)  credited for the cost of the bonds at the sale date. 
C)  credited for the fair value of the bonds at the sale date. 
D)  debited for the cost of the bonds at the sale date.

Question 8

Debt investments are investments in government and corporation bonds.

Accepted Answer

A) True 
 B)False

Question 9

When a year-end adjustment is made to reduce the trading securities portfolio to market what effect if any will the adjustment have on the balance sheet and the income statement?

Accepted Answer

The unrealized loss would be reported in

Question 10

The valuation of available-for-sale securities is similar to the procedures followed for trading securities except that changes in fair value are not recognized in current income.

Accepted Answer

A) True 
 B)False

Question 11

Brandy Corporation's trading portfolio at the end of the year is as follows: $\begin{array}{lrr}
\underline{\text { Security}}&\underline{\text { Cost}}&\underline{\text { Fair Value}}\
\text { Common Stock C } & \$ 10,000 & \$ 12,000 \
\text { Common Stock D } & \underline{9,000} & \underline{5,000}\
&\underline{\$19,000}&\underline{\$17,000}
\end{array}$ At the end of the year Brandy Corporation should

Accepted Answer

A)  set up a Fair Value Adjustment account for Stock D. 
B)  set up a Fair Value Adjustment account for the portfolio. 
C)  recognize an Unrealized Gain or Loss-Income for $4000. 
D)  report a loss on the income statement for $4000 under "Other expenses and losses." 
A)  set up a Fair Value Adjustment account for Stock D. 
B)  set up a Fair Value Adjustment account for the portfolio. 
C)  recognize an Unrealized Gain or Loss-Income for $4000. 
D)  report a loss on the income statement for $4000 under "Other expenses and losses."

Question 12

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 13

Which of the following are accounted for at amortized cost?

Accepted Answer

A)  Held-for-collection investments 
B)  Held-to-maturity investments 
C)  Non-trading equity investments 
D)  Both Held-for-collection and Held-to-maturity investments 
A)  Held-for-collection investments 
B)  Held-to-maturity investments 
C)  Non-trading equity investments 
D)  Both Held-for-collection and Held-to-maturity investments

Question 14

At December 31 2017 the trading securities for Saddle Inc. are as follows: $$\begin{array} { c c c } 
 \underline{\text { Security }} & \underline{ \text { Cost } }& \underline{ \text { Fair Value 12/31/17 }} \
\text { A } & \$ 90,000 & \$ 94,000 \
\text { B } & 150,000 & 141,000 \
\text { C } & 32,000 & 30,000
\end{array}$$ Saddle should report the following amount related to the securities in its 2017 income statement:

Accepted Answer

A)  $4000 gain 
B)  $7000 realized loss. 
C)  $7000 unrealized loss. 
D)  $11000 unrealized loss. 
A)  $4000 gain 
B)  $7000 realized loss. 
C)  $7000 unrealized loss. 
D)  $11000 unrealized loss.

Question 15

On January 1 2017 Lark Corporation purchased 35% of the common stock outstanding of Dinc Corporation for $700000. During 2017 Dinc Corporation reported net income of $200000 and paid cash dividends of $100000. The balance of the Stock Investments-Run account on the books of Lark Corporation at December 31 2017 is

Accepted Answer

A)  $700000. 
B)  $735000. 
C)  $770000. 
D)  $665000. 
A)  $700000. 
B)  $735000. 
C)  $770000. 
D)  $665000.

Question 16

The cost of debt investments includes each of the following except

Accepted Answer

A)  brokerage fees. 
B)  commissions. 
C)  accrued interest. 
D)  the price paid. 
A)  brokerage fees. 
B)  commissions. 
C)  accrued interest. 
D)  the price paid.

Question 17

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 18

At the end of its first year the trading securities portfolio consisted of the following common stocks. $\begin{array}{lrr}
& \underline{\text { Cost }}& \underline{\text { Fair Value }}\
\text { Atrium Corporation } & \$ 46,500 & \$ 50,000 \
\text { Barnes Inc. } & 60,000 & 58,000 \
\text { Cantor Corporation } & \underline{80,000}& \underline{76,400} \
& \underline{ \$ 186,500} & \underline{ \$ 184,400}
\end{array}$
 In the following year the Barnes common stock is sold for cash proceeds of $57000. The gain or loss to be recognized on the sale is a

Accepted Answer

A)  gain of $1200. 
B)  loss of $3000. 
C)  Loss of $1000. 
D)  loss of $2000. 
A)  gain of $1200. 
B)  loss of $3000. 
C)  Loss of $1000. 
D)  loss of $2000.

Question 19

Which of the following investment classifications are the same for GAAP and IFRS?

Accepted Answer

A)  Available-for-sale 
B)  Held-to-maturity 
C)  Non-trading 
D)  Trading. 
A)  Available-for-sale 
B)  Held-to-maturity 
C)  Non-trading 
D)  Trading.

Question 20

Under the equity method the Stock Investments account is increased when the

Accepted Answer

A)  investee company reports net income. 
B)  investee company pays a dividend. 
C)  investee company reports a loss. 
D)  stock investment is sold at a gain. 
A)  investee company reports net income. 
B)  investee company pays a dividend. 
C)  investee company reports a loss. 
D)  stock investment is sold at a gain.

Exam 16: Investments

When debt investments are sold the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds.

An unrealized loss on trading securities is reported under Other ____________________ on the income statement.

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

If a parent company has two wholly owned subsidiaries how many legal and economic entities are there from the viewpoint of the shareholders of the parent company? A) 3 3 B) 1 2 C) 3 1 D) 2 1

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

If a short-term debt investment is sold the Investment account is

Debt investments are investments in government and corporation bonds.

When a year-end adjustment is made to reduce the trading securities portfolio to market what effect if any will the adjustment have on the balance sheet and the income statement?

The valuation of available-for-sale securities is similar to the procedures followed for trading securities except that changes in fair value are not recognized in current income.

Brandy Corporation's trading portfolio at the end of the year is as follows: Common Stock C \ 10,000 \ 12,000 Common Stock D At the end of the year Brandy Corporation should

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

Which of the following are accounted for at amortized cost?

At December 31 2017 the trading securities for Saddle Inc. are as follows: A \ 90,000 \ 94,000 B 150,000 141,000 C 32,000 30,000 Saddle should report the following amount related to the securities in its 2017 income statement:

The cost of debt investments includes each of the following except

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

Which of the following investment classifications are the same for GAAP and IFRS?

Under the equity method the Stock Investments account is increased when the

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