Question 1

Under the equity method, the investor records dividends received by crediting

Accepted Answer

A)  Dividend Revenue. 
B)  Investment Income. 
C)  Revenue from Investment. 
D)  Stock Investments. 
A)  Dividend Revenue. 
B)  Investment Income. 
C)  Revenue from Investment. 
D)  Stock Investments.

Question 2

At the end of the first year of operations, the total cost of the trading securities portfolio is $244,000. Total fair value is $250,000. The financial statements should show

Accepted Answer

A)  an addition to an asset of $6,000 and a realized gain of $6,000. 
B)  an addition to an asset of $6,000 and an unrealized gain of $6,000 in the stockholders' equity section. 
C)  an addition to an asset of $6,000 in the current assets section and an unrealized gain of $6,000 in "Other revenues and gains." 
D)  an addition to an asset of $6,000 in the current assets section and a realized gain of $6,000 in "Other revenues and gains." 
A)  an addition to an asset of $6,000 and a realized gain of $6,000. 
B)  an addition to an asset of $6,000 and an unrealized gain of $6,000 in the stockholders' equity section. 
C)  an addition to an asset of $6,000 in the current assets section and an unrealized gain of $6,000 in "Other revenues and gains." 
D)  an addition to an asset of $6,000 in the current assets section and a realized gain of $6,000 in "Other revenues and gains."

Question 3

Match the items below by entering the appropriate code letter in the space provided.
A. Available-for-sale securities F. Consolidated financial statements
B. Subsidiary company G. Controlling interest
C. Equity method H. Market Adjustment
D. Unrealized Gain or Loss-Equity I. Parent company
E. Fair value J. Long-term investments
____ 1. Valuation allowance account.
____ 2. Amount for which a security could be sold.
____ 3. Ownership of more than 50% of another company's common stock.
____ 4. Securities that may be sold in the future.
____ 5. Investments that are not readily marketable and not intended to be converted into cash within the next year.
____ 6. Financial statements that present the total assets and liabilities controlled by the parent and the total revenues and expenses of the subsidiary companies.
____ 7. The Stock Investments account is adjusted for net income and dividends received.
____ 8. A company that owns more than 50% of the common stock of another entity.
____ 9. Entity whose stock is owned by the parent company.
____ 10. An account that is reported in the stockholders' equity section.

Accepted Answer

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

Question 4

Cost of debt investments includes the price paid plus ______________

Accepted Answer

The answer of Cost of debt investments includes the price...

Question 5

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

Accepted Answer

A)  less than 20% 
B)  between 20% and 50% 
C)  less than 50% 
D)  more than 50% 
A)  less than 20% 
B)  between 20% and 50% 
C)  less than 50% 
D)  more than 50%

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Weaver Company has the following data at December 31, 2010 for its securities.   
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

The answer of Weaver Company has the following data at...

Question 10

Carlin Corporation sells 400 shares of common stock being held as a short-term investment. The shares were acquired six months ago at a cost of $50 a share. Carlin sold the shares for $40 a share. The entry to record the sale is

Accepted Answer

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

At January 1, 2010, the trading securities portfolio held by the Darin Corporation consisted of the following investments:
1. 2,000 shares of Tanner common stock purchased for $42 per share.
2. 1,500 shares of Lester common stock purchased for $50 per share.
At December 31, 2010, the fair values per share were Stitch $38 and Lester $54.
Instructions
(a) Prepare a schedule showing the cost and fair value of the portfolio at December 31, 2010.
(b) Prepare the adjusting entry to report the portfolio at fair value at December 31, 2010.

Accepted Answer

The answer of At January 1, 2010, the trading securities...

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Tolan Co. purchased 60, 6% Irick Company bonds for $60,000 cash plus brokerage fees of $600. Interest is payable semiannually on July 1 and January 1. If 30 of the securities are sold on July 1 for $32,000 less $300 brokerage fees, the entry would include a credit to Gain on Sale of Debt Investments for

Accepted Answer

A)  $2,000. 
B)  $1,700. 
C)  $2,300. 
D)  $1,400. 
A)  $2,000. 
B)  $1,700. 
C)  $2,300. 
D)  $1,400.

Question 15

Elston Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Elston sold the shares for $40 a share. The entry to record the sale is

Accepted Answer

The answer of Elston Corporation sells 200 shares of common...

Question 16

Cost and fair value data for the trading securities of Clifford Company at December 31, 2010, are $100,000 and $74,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value?

Accepted Answer

The answer of Cost and fair value data for the...

Question 17

Winrow Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

Accepted Answer

A)  debit to Interest Receivable for $1,500. 
B)  debit to Interest Revenue for $1,500. 
C)  credit to Interest Revenue for $1,515. 
D)  debit to Debt Investments for $1,500. 
A)  debit to Interest Receivable for $1,500. 
B)  debit to Interest Revenue for $1,500. 
C)  credit to Interest Revenue for $1,515. 
D)  debit to Debt Investments for $1,500.

Question 18

Under the equity method, the Stock Investments account is credited when the

Accepted Answer

A)  investee reports net income. 
B)  investee reports a net loss. 
C)  investment is originally acquired. 
D)  investee reports net income and when the investment is originally acquired. 
A)  investee reports net income. 
B)  investee reports a net loss. 
C)  investment is originally acquired. 
D)  investee reports net income and when the investment is originally acquired.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 16: Investments

Under the equity method, the investor records dividends received by crediting

At the end of the first year of operations, the total cost of the trading securities portfolio is $244,000. Total fair value is $250,000. The financial statements should show

Cost of debt investments includes the price paid plus ______________

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

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.

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

Revenue is recognized when cash dividends are received under

Weaver Company has the following data at December 31, 2010 for its securities. 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.

Carlin Corporation sells 400 shares of common stock being held as a short-term investment. The shares were acquired six months ago at a cost of $50 a share. Carlin sold the shares for $40 a share. The entry to record the sale is

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

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

Elston Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Elston sold the shares for $40 a share. The entry to record the sale is

Cost and fair value data for the trading securities of Clifford Company at December 31, 2010, are $100,000 and $74,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value?

Winrow Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

Under the equity method, the Stock Investments account is credited when the

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

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

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 Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

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