Exam 14: Understanding Investments in Debt and Equity Securities

Assume that Chapman's Inc.'s trading securities have a total cost of $185,000 and a total fair value of $215,000 at year end.The related adjusting entry would include a debit to

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

If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its present value is

If the equity method is being used, the Revenue from Investment in Stock account is

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.

Unless there is evidence to the contrary, an investor owning 25% of the stock of an investee is assumed to have significant influence.

On January 1, 2022, Tri-State Supply Company purchased at face value, a $1,000, 5%, bond that pays interest annually on January 1.Tri-State Company has a calendar year end.The entry on January 1, 2022, is

The present value of a long-term note or bond is a function of two variables.

On January 1, 2022, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1.LaRoche Company has a calendar year end.The entry for the receipt of interest on January 1, 2023, Is

The receipt of dividends on an investment affects the Stock Investment account when which of the following methods is used?

Debt investments are investments in government and corporation bonds.

On January 1, 2022, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1.LaRoche Company has a calendar year end.The adjusting entry on December 31, 2022, is

Which of the following statements is true about investments classified as trading securities?

The future value of an annuity factor for 2 periods is equal to

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

If a debt investment is sold, the investment account is

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.

If $40,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

The company whose stock is owned by the parent company is called the

Dexter Company is considering purchasing equipment.The equipment will produce the following cash flows: Dexter requires a minimum rate of return of 10%.What is the maximum price Dexter should pay for this equipment?