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

If a common stock investment is sold at a gain the gain

Accepted Answer

A)  is reported as operating revenue. 
B)  is reported under a special section "Discontinued investments" on the income statement. 
C)  is reported in the Other revenues and gains section of the income statement. 
D)  contributes to gross profit on the income statement. 
A)  is reported as operating revenue. 
B)  is reported under a special section "Discontinued investments" on the income statement. 
C)  is reported in the Other revenues and gains section of the income statement. 
D)  contributes to gross profit on the income statement.

Question 3

Information pertaining to long-term stock investments in 2017 by Bell Corporation follows:
Acquired 18% of the 250000 shares of common stock of Kansas Company at a total cost of $8 per share on January 1 2017. On July 1 Kansas Company declared and paid a cash dividend of $2 per share. On December 31 Kansas's reported net income was $654000 for the year.
Obtained significant influence over Toto Company by buying 30% of Toto's 100000 outstanding shares of common stock at a total cost of $22 per share on January 1 2017. On June 15 Toto Company declared and paid a cash dividend of $1.50 per share. On December 31 Toto's reported net income was $280000.
Instructions
Prepare all necessary journal entries for 2017 for Bell Corporation.

Accepted Answer

The answer of Information pertaining to long-term stock investments in...

Question 4

A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

Accepted Answer

A) True 
 B)False

Question 5

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  trading securities. 
B)  available-for-sale securities. 
C)  never-sell securities. 
D)  held-to-maturity securities. 
A)  trading securities. 
B)  available-for-sale securities. 
C)  never-sell securities. 
D)  held-to-maturity securities.

Question 7

The Fair Value Adjustment account

Accepted Answer

A)  is set up for each security in the company's portfolio. 
B)  relates to the entire portfolio of securities held by the company. 
C)  is closed at the end of each accounting period. 
D)  appears on the income statement as Other Expenses and Losses. 
A)  is set up for each security in the company's portfolio. 
B)  relates to the entire portfolio of securities held by the company. 
C)  is closed at the end of each accounting period. 
D)  appears on the income statement as Other Expenses and Losses.

Question 8

Match the items below by entering the appropriate code letter in the space provided.

Accepted Answer

1. H 6. F
2. E 7. C

Question 9

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

Accepted Answer

A)  credited to the Stock Investments account. 
B)  credited to the Dividend Revenue account. 
C)  debited to the Stock Investments account. 
D)  recorded only when 20% or more of the stock is owned. 
A)  credited to the Stock Investments account. 
B)  credited to the Dividend Revenue account. 
C)  debited to the Stock Investments account. 
D)  recorded only when 20% or more of the stock is owned.

Question 10

If the fair value of an available-for-sale security exceeds its cost the security should be written up to fair value and a realized gain should be recognized.

Accepted Answer

A) True 
 B)False

Question 11

Changes from cost are reported as part of net income for

Accepted Answer

A)  available-for-sale securities. 
B)  held-to-maturity securities. 
C)  debt securities. 
D)  trading securities. 
A)  available-for-sale securities. 
B)  held-to-maturity securities. 
C)  debt securities. 
D)  trading securities.

Question 12

What purposes are served by reporting Unrealized Gains (Losses)-Equity in the stockholders' equity section?

Accepted Answer

Reporting Unrealized Gains (Losses)-Equi

Question 13

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 14

On January 2 Penny Company purchased 45 10% $1000 Mikel Company bonds for $45000 cash. Interest is payable annually on January 1. Journalize the entries to record the purchase of the bonds and the accrual of the annual interest on December 31.

Accepted Answer

None

Question 15

The balance in the Unrealized Gain or Loss-Equity account will

Accepted Answer

A)  appear on the balance sheet as a contra asset. 
B)  appear on the income statement under Other Expenses and Losses. 
C)  appear in the stockholders' equity section. 
D)  not be shown on the financial statements until the securities are sold. 
A)  appear on the balance sheet as a contra asset. 
B)  appear on the income statement under Other Expenses and Losses. 
C)  appear in the stockholders' equity section. 
D)  not be shown on the financial statements until the securities are sold.

Question 16

Under the cost method the investment is recorded at cost and revenue is recognized only when cash dividends are received.

Accepted Answer

A) True 
 B)False

Question 17

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 January 1 2017 annual interest payment would include a

Accepted Answer

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

Question 18

Which of the following is not a true statement about the accounting for debt investments?

Accepted Answer

A)  At acquisition the historical cost principle applies. 
B)  The cost includes any brokerage fees. 
C)  Debt investments include investments in government and corporation bonds. 
D)  The cost includes any accrued interest. 
A)  At acquisition the historical cost principle applies. 
B)  The cost includes any brokerage fees. 
C)  Debt investments include investments in government and corporation bonds. 
D)  The cost includes any accrued interest.

Question 19

"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 20

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

Exam 16: Investments

At the time of acquisition of a debt investment

If a common stock investment is sold at a gain the gain

A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

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

The Fair Value Adjustment account

Match the items below by entering the appropriate code letter in the space provided.

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

If the fair value of an available-for-sale security exceeds its cost the security should be written up to fair value and a realized gain should be recognized.

Changes from cost are reported as part of net income for

What purposes are served by reporting Unrealized Gains (Losses)-Equity in the stockholders' equity section?

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

On January 2 Penny Company purchased 45 10% $1000 Mikel Company bonds for $45000 cash. Interest is payable annually on January 1. Journalize the entries to record the purchase of the bonds and the accrual of the annual interest on December 31.

The balance in the Unrealized Gain or Loss-Equity account will

Under the cost method the investment is recorded at cost and revenue is recognized only when cash dividends are received.

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 January 1 2017 annual interest payment would include a

Which of the following is not a true statement about the accounting for debt investments?

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

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.

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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