Question 1

Short-term investments are

Accepted Answer

A)  (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle whichever is shorter. 
B)  (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle whichever is longer. 
C)  (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle whichever is longer. 
D)  (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle whichever is shorter. 
A)  (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle whichever is shorter. 
B)  (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle whichever is longer. 
C)  (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle whichever is longer. 
D)  (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle whichever is shorter.

Question 2

Debt investments are investments in government and _____________ bonds.

Accepted Answer

The answer of Debt investments are investments in government and...

Question 3

Corporations invest excess cash for short periods of time in each of the following except

Accepted Answer

A)  equity securities. 
B)  highly liquid securities. 
C)  low-risk securities. 
D)  government securities. 
A)  equity securities. 
B)  highly liquid securities. 
C)  low-risk securities. 
D)  government securities.

Question 4

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Accepted Answer

A) True 
 B)False

Question 5

The Fair Value Adjustment account is a balance sheet account. Identify the asset account it is related to. Explain how this account is increased and describe the procedure followed when its related asset account is disposed of.

Accepted Answer

The Fair Value Adjustment account is a v

Question 6

On January 14 Balcom Corporation purchased 20 11% $1000 Eiger Company bonds for $20400. On November 30 the company sold 10 of the Eiger Company bonds for $11600. Prepare journal entries for the purchase and sale of the Eiger Company bonds.

Accepted Answer

None

Question 7

Viejo Inc. earns $600000 and pays cash dividends of $150000 during 2017. Cruz Corporation owns 73500 of the 210000 outstanding shares of Viejo. What amount should Cruz show in the investment account at December 31 2017 if the beginning of the year balance in the account was $40000?

Accepted Answer

A)  $197500 
B)  $210000 
C)  $157500 
D)  $250000 
A)  $197500 
B)  $210000 
C)  $157500 
D)  $250000

Question 8

The following information is available for Lewis Corporation's available-for-sale securities at December 31 2017. $\begin{array}{lll}
 \underline{\text { Security } }& \underline{\text { Cost } }& \underline{\text { Fair value }}\
\text {X }& \$ 34,000 & \$ 30,000 \
\text {Y} & \underline{24,000} & \underline{32,000}\
&\underline{\$58,000}&\underline{\$62,000}
\end{array}$ Instructions
Prepare the adjusting entry to record the securities at fair value at December 31 2017.

Accepted Answer

Fair Value Adjustmen

Question 9

Hungh Company had the following transactions pertaining to short-term investments in equity securities.
Jan. 1 Purchased 1500 shares of Antuni Company stock for $9500 cash.
June 1 Received cash dividends of $.40 per share on Antuni Company stock.
Sept. 15 Sold 375 shares of Antuni Company stock for $2300 less brokerage fees of $100.
Dec. 1 Received cash dividends of $.80 per share on Antuni Company stock.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.

Accepted Answer

(a)
 (b) Dividend Revenue is r

Question 10

On April 25 Davis Company buys 4200 shares of Carter common stock for $94500. On October 31 Davis sells 600 shares of Carter stock for $16500. Prepare journal entries for the purchase and sale of the Carter common stock.

Accepted Answer

None

Question 11

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year Lynn pays $25000 in dividends and reports $200000 in net income. Penny Company's investment in Lynn will increase by

Accepted Answer

A)  $25000. 
B)  $40000. 
C)  $45000. 
D)  $35000. 
A)  $25000. 
B)  $40000. 
C)  $45000. 
D)  $35000.

Question 12

When a company owns more than 50% of the common stock of another company

Accepted Answer

A)  affiliated financial statements are prepared. 
B)  consolidated financial statements are prepared. 
C)  controlling financial statements are prepared. 
D)  significant financial statements are prepared. 
A)  affiliated financial statements are prepared. 
B)  consolidated financial statements are prepared. 
C)  controlling financial statements are prepared. 
D)  significant financial statements are prepared.

Question 13

If 10% of the common stock of an investee company is purchased as a long-term investment the appropriate method of accounting for the investment is

Accepted Answer

A)  the cost method. 
B)  the equity method. 
C)  the preparation of consolidated financial statements. 
D)  determined by agreement with whomever owns the remaining 90% of the stock. 
A)  the cost method. 
B)  the equity method. 
C)  the preparation of consolidated financial statements. 
D)  determined by agreement with whomever owns the remaining 90% of the stock.

Question 14

Shallot Company has the following data at December 31 2017 for its securities. $$\begin{array} { l r r } 
 \underline{\text { Securities }} & \underline { \text { Cost } } & \underline{ \text { Fair Value } } \
\text { Trading } & \$ 90,000 &\$93,000\
\text { Available-for-sale }&74,000&68,000
\end{array}$$ Instructions
(a) Prepare the adjusting entries to report the securities at fair value.
(b) Indicate the statement presentation of the related unrealized gain (loss) accounts for each class of securities.

Accepted Answer

@#IMG-DLM& (b) Unrealized Gain-Income: I

Question 15

Reporting investments at fair value is

Accepted Answer

A)  applicable to stock securities only. 
B)  applicable to debt securities only. 
C)  applicable to both debt and stock securities. 
D)  a conservative approach because only losses are recognized. 
A)  applicable to stock securities only. 
B)  applicable to debt securities only. 
C)  applicable to both debt and stock securities. 
D)  a conservative approach because only losses are recognized.

Question 16

Short-term investments are listed on the balance sheet immediately below

Accepted Answer

A)  cash. 
B)  inventory. 
C)  accounts receivable. 
D)  prepaid expenses. 
A)  cash. 
B)  inventory. 
C)  accounts receivable. 
D)  prepaid expenses.

Question 17

On August 1 Masters Company buys 2000 shares of ABD common stock for $72500 cash. On December 1 the stock investments are sold for $75000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

Accepted Answer

The answer of On August 1 Masters Company buys 2000...

Question 18

Rosco Company purchased 35000 shares of common stock of Paxton Corporation as a long-term investment for $900000. During the year Paxton Corporation reported net income of $300000 and paid dividends of $100000.
Instructions
(a) Assuming that the 35000 shares represent a 10% interest in Paxton Corporation:
1. Prepare the journal entry to record the investment in Paxton stock.
2. Prepare any entries that Rosco Company should make in accounting for its investment in Paxton stock during the year.
3. What is the balance of the Stock Investments account on Rosco Company's books at the end of the year?
(b) Repeat requirement (a) above except assume that the 35000 shares represent a 20% interest in Paxton Corporation.

Accepted Answer

The answer of Rosco Company purchased 35000 shares of common...

Question 19

A consolidated balance sheet reports the financial position of two or more legal entities just as if they were one reporting unit. Explain why all the individual items appearing on the separate balance sheets of each of the affiliated companies cannot be added together to arrive at a consolidated total for each item.

Accepted Answer

A consolidated balance sheet does not in

Question 20

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

Accepted Answer

A) True 
 B)False

Exam 16: Investments

Short-term investments are

Debt investments are investments in government and _____________ bonds.

Corporations invest excess cash for short periods of time in each of the following except

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

The Fair Value Adjustment account is a balance sheet account. Identify the asset account it is related to. Explain how this account is increased and describe the procedure followed when its related asset account is disposed of.

On January 14 Balcom Corporation purchased 20 11% $1000 Eiger Company bonds for $20400. On November 30 the company sold 10 of the Eiger Company bonds for $11600. Prepare journal entries for the purchase and sale of the Eiger Company bonds.

Viejo Inc. earns $600000 and pays cash dividends of $150000 during 2017. Cruz Corporation owns 73500 of the 210000 outstanding shares of Viejo. What amount should Cruz show in the investment account at December 31 2017 if the beginning of the year balance in the account was $40000?

The following information is available for Lewis Corporation's available-for-sale securities at December 31 2017. X \ 34,000 \ 30,000 Y Instructions Prepare the adjusting entry to record the securities at fair value at December 31 2017.

On April 25 Davis Company buys 4200 shares of Carter common stock for $94500. On October 31 Davis sells 600 shares of Carter stock for $16500. Prepare journal entries for the purchase and sale of the Carter common stock.

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year Lynn pays $25000 in dividends and reports $200000 in net income. Penny Company's investment in Lynn will increase by

When a company owns more than 50% of the common stock of another company

If 10% of the common stock of an investee company is purchased as a long-term investment the appropriate method of accounting for the investment is

Reporting investments at fair value is

Short-term investments are listed on the balance sheet immediately below

On August 1 Masters Company buys 2000 shares of ABD common stock for $72500 cash. On December 1 the stock investments are sold for $75000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

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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