Question 1

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 2

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 3

Lanier industries owns 45% of McCoy Company. For the current year, McCoy reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Lanier's equity in McCoy's net income and the receipt of dividends from McCoy?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 4

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 5

On January 1, 2010, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end.
The adjusting entry on December 31, 2010, is

Accepted Answer

The answer of On January 1, 2010, Milton Company purchased...

Question 6

The accounting for short-term debt investments and for long-term debt investments is similar.

Accepted Answer

A) True 
 B)False

Question 7

On January 1, Barone Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,100 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?

Accepted Answer

The answer of On January 1, Barone Company purchased as...

Question 8

If the equity method is being used, cash dividends received

Accepted Answer

A)  are credited to Dividend Revenue. 
B)  require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Stock Investments account. 
D)  are credited to the Revenue from Investment in Stock account. 
A)  are credited to Dividend Revenue. 
B)  require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Stock Investments account. 
D)  are credited to the Revenue from Investment in Stock account.

Question 9

Which of the following would not be considered a motive for making a stock investment in another corporation?

Accepted Answer

A)  Appreciation in the market value of the stock investment 
B)  Use of the investment for expanding its own operations 
C)  Use of the investment to diversify its own operations 
D)  An increase in the amount of interest revenue from the stock investment 
A)  Appreciation in the market value of the stock investment 
B)  Use of the investment for expanding its own operations 
C)  Use of the investment to diversify its own operations 
D)  An increase in the amount of interest revenue from the stock investment

Question 10

Milner Corporation had the following transactions pertaining to debt investments.
Jan. 1 Purchased 60, 8%, $1,000 Welch Company bonds for $60,000, plus brokerage fees of $800.
July 1 Sold 20 Welch Company bonds for $18,000, less $400 brokerage fees.
Instructions
Prepare journal entries for the purchase and sale of the Welch Company bonds.

Accepted Answer

The answer of Milner Corporation had the following transactions pertaining...

Question 11

Stocks traded on the New York Stock Exchange are considered readily marketable.

Accepted Answer

A) True 
 B)False

Question 12

In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Accepted Answer

A) True 
 B)False

Question 13

Dobson Inc. earns $450,000 and pays cash dividends of $150,000 during 2010. Cornwell Corporation owns 70,000 of the 210,000 outstanding shares of Dobson.
How much revenue from investment should Cornwell report in 2010?

Accepted Answer

A)  $50,000 
B)  $100,000 
C)  $150,000 
D)  $200,000 
A)  $50,000 
B)  $100,000 
C)  $150,000 
D)  $200,000

Question 14

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

Accepted Answer

A)  At acquisition, the 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 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 15

Trent Corporation's balance sheet at December 31, 2009, showed the following:
Short-term investments, at fair value $46,500
Trent Corporation's trading portfolio of stock investments consisted of the following at December 31, 2009:   
During 2010, the following transactions took place:
Feb. 5 Sold 50 shares of Carey common stock for $8,000.
Mar. 30 Purchased 25 shares of Hill common stock for $950.
Sept. 9 Purchased 50 shares of Hill common stock for $2,000.
At year end on December 31, 2010, the market values per share were:   
Instructions
(a) Prepare the journal entries to record the 2010 stock transactions.
(b) On December 31, 2010, prepare any adjusting entry that might be necessary relative to the trading portfolio.
(c) Show how the stock investments will appear on Trent Corporation's balance sheet at December 31, 2010.

Accepted Answer

The answer of Trent Corporation's balance sheet at December 31,...

Question 16

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

Accepted Answer

A)  is not required since the share prices will likely rebound in the long run. 
B)  will show a debit to an expense account. 
C)  will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet. 
D)  will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet. 
A)  is not required since the share prices will likely rebound in the long run. 
B)  will show a debit to an expense account. 
C)  will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet. 
D)  will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

Question 17

At the end of its first year, the trading securities portfolio consisted of the following common stocks.   In the following year, the Benes common stock is sold for cash proceeds of $57,000. The gain or loss to be recognized on the sale is a

Accepted Answer

A)  gain of $1,200. 
B)  loss of $3,000. 
C)  gain of $200. 
D)  loss of $3,400. 
A)  gain of $1,200. 
B)  loss of $3,000. 
C)  gain of $200. 
D)  loss of $3,400.

Question 18

At the time of acquisition of a debt investment,

Accepted Answer

A)  no journal entry is required. 
B)  the 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 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 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 16: Investments

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

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

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

On January 1, 2010, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end. The adjusting entry on December 31, 2010, is

The accounting for short-term debt investments and for long-term debt investments is similar.

If the equity method is being used, cash dividends received

Which of the following would not be considered a motive for making a stock investment in another corporation?

Stocks traded on the New York Stock Exchange are considered readily marketable.

In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Dobson Inc. earns $450,000 and pays cash dividends of $150,000 during 2010. Cornwell Corporation owns 70,000 of the 210,000 outstanding shares of Dobson. How much revenue from investment should Cornwell report in 2010?

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

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

At the end of its first year, the trading securities portfolio consisted of the following common stocks. In the following year, the Benes common stock is sold for cash proceeds of $57,000. The gain or loss to be recognized on the sale is a

At the time of acquisition of a debt investment,

Short-term investments are

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

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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