Question 1

Accounting for investments under the equity method generally applies when the level of ownership in another company is at what percentage?

Accepted Answer

A)  Less than 20 percent 
B)  20 percent to 30 percent 
C)  20 percent to 50 percent 
D)  More than 50 percent 
A)  Less than 20 percent 
B)  20 percent to 30 percent 
C)  20 percent to 50 percent 
D)  More than 50 percent

Question 2

On January 2, 2011, U.S. Buyers, Inc. purchased 5,000 shares of the 20,000 shares outstanding of Latino Corporation stock for $15,000. The following information was reported by Latino during 2011:   U.S. Buyers, Inc. sold all of its Latino Corporation stock on March 1, 2012, for $3.10 per share. The total amount U.S. Buyers, Inc. should report on the sale is

Accepted Answer

A)  $3,500 gain 
B)  $3,000 loss 
C)  $2,000 loss 
D)  $1,950 loss 
A)  $3,500 gain 
B)  $3,000 loss 
C)  $2,000 loss 
D)  $1,950 loss

Question 3

The total amount of interest earned when bonds are purchased at a premium is the amount of the cash interest payments

Accepted Answer

A)  Plus the discount 
B)  Minus the discount 
C)  Plus the premium 
D)  Minus the premium 
A)  Plus the discount 
B)  Minus the discount 
C)  Plus the premium 
D)  Minus the premium

Question 4

A financial instrument that represents actual ownership in a corporation is a(n)

Accepted Answer

A)  Debt security 
B)  Equity security 
C)  Both debt and equity security 
D)  Neither debt nor equity security 
A)  Debt security 
B)  Equity security 
C)  Both debt and equity security 
D)  Neither debt nor equity security

Question 5

A net unrealized increase in the value of available-for-sale securities (considered as a whole) should be reflected in the current financial statements as

Accepted Answer

A)  An extraordinary item on the income statement which increases retained earnings 
B)  A current revenue resulting from holding securities 
C)  Only a disclosure in the footnotes to the financial statements 
D)  A valuation allowance which is included in the equity section of the balance sheet 
A)  An extraordinary item on the income statement which increases retained earnings 
B)  A current revenue resulting from holding securities 
C)  Only a disclosure in the footnotes to the financial statements 
D)  A valuation allowance which is included in the equity section of the balance sheet

Question 6

On January 5, 2012, Gannon Corporation purchased 100 shares of Hedney Company stock at $12 per share and paid a $50 brokerage commission. Gannon classified the shares as available-for-sale securities. On May 31, 2012, the entry to record the receipt of the 60-cent-per-share dividend would include a credit to

Accepted Answer

A)  Dividend Revenue for $100 
B)  Long-Term Investments for $60 
C)  Dividend Revenue for $60 
D)  Long-Term Investments for $100 
A)  Dividend Revenue for $100 
B)  Long-Term Investments for $60 
C)  Dividend Revenue for $60 
D)  Long-Term Investments for $100

Question 7

On January 2, 2011, Oakwood, Inc., purchased $800,000 of 10 percent, 10-year bonds for $872,000. The bonds pay interest on January 1 and July 1 of each year. Oakwood uses straight-line amortization for all premiums or discounts. On July 1, 2014, Oakwood sold the bonds for $832,000. How much gain or loss should Oakwood record on the sale?

Accepted Answer

A)  $6,800 gain 
B)  $6,800 loss 
C)  $14,800 gain 
D)  $14,800 loss 
A)  $6,800 gain 
B)  $6,800 loss 
C)  $14,800 gain 
D)  $14,800 loss

Question 8

Johnson Company owns 90% of the outstanding stock of Smith Company. The equity of the remaining 10% of Smith Company stock is called the

Accepted Answer

A)  Parent 
B)  Minority interest 
C)  Majority interest 
D)  Subsidiary 
A)  Parent 
B)  Minority interest 
C)  Majority interest 
D)  Subsidiary

Question 9

A financial instrument that carries with it the promise to pay interest payments and repay the principal amount is a(n)

Accepted Answer

A)  Debt security 
B)  Equity security 
C)  Both debt and equity security 
D)  Neither debt nor equity security 
A)  Debt security 
B)  Equity security 
C)  Both debt and equity security 
D)  Neither debt nor equity security

Question 10

In general, consolidated financial statements should be prepared

Accepted Answer

A)  When a corporation owns more than 20% of the common stock of another company 
B)  When a corporation owns more than 50% of the common stock of another company 
C)  Only when a corporation owns 100% of the common stock of another company 
D)  Whenever the market value of the stock investment is significantly lower than its cost 
A)  When a corporation owns more than 20% of the common stock of another company 
B)  When a corporation owns more than 50% of the common stock of another company 
C)  Only when a corporation owns 100% of the common stock of another company 
D)  Whenever the market value of the stock investment is significantly lower than its cost

Question 11

Consolidated financial statements are typically prepared when one company has

Accepted Answer

A)  Accounted for its investment in another company by the equity method 
B)  Significant influence over the operating and financial policies of another company 
C)  The controlling financial interest in another company 
D)  A substantial equity interest in the net assets of another company 
A)  Accounted for its investment in another company by the equity method 
B)  Significant influence over the operating and financial policies of another company 
C)  The controlling financial interest in another company 
D)  A substantial equity interest in the net assets of another company

Question 12

The amortization of a bond discount

Accepted Answer

A)  Increases the amount of interest revenue earned on an investment in bonds 
B)  Decreases the amount of interest revenue earned on an investment in bonds 
C)  Decreases the balance of the Investment account 
D)  Does not affect the balance in the Investment account 
A)  Increases the amount of interest revenue earned on an investment in bonds 
B)  Decreases the amount of interest revenue earned on an investment in bonds 
C)  Decreases the balance of the Investment account 
D)  Does not affect the balance in the Investment account

Question 13

Answer the following questions with respect to classifications of security:

Accepted Answer

The answer of Answer the following questions with respect to...

Question 14

On January 1, 2012, Newton Corporation purchased $200,000 of 10-year, 10 percent bonds for $227,184 to yield 8 percent annually. The bonds pay interest on January 1, and July 1 of each year. If Tomas uses the effective interest method of amortization, how much interest revenue will the company record for the first six months? (rounded)

Accepted Answer

A)  $10,912 
B)  $10,000 
C)  $9,087 
D)  $8,912 
A)  $10,912 
B)  $10,000 
C)  $9,087 
D)  $8,912

Question 15

Simpson Corporation purchased $30,000 of Tekservice Corporation's 12 percent bonds for $27,345 plus accrued interest on March 1, 2012. The bonds mature on January 1, 2022, and interest is payable on June 30 and December 31. How much discount or premium should be amortized on June 30, 2012, under the straight-line method?

Accepted Answer

A)  $135.00 
B)  $132.75 
C)  $90.00 
D)  $88.50 
A)  $135.00 
B)  $132.75 
C)  $90.00 
D)  $88.50

Question 16

The journal entry to record the amortization of a premium resulting from an investment in bonds would cause

Accepted Answer

A)  An increase in Investment in Bonds 
B)  An increase in Bond Interest Revenue 
C)  A decrease in Bond Interest Revenue 
D)  No change in Investment in Bonds 
A)  An increase in Investment in Bonds 
B)  An increase in Bond Interest Revenue 
C)  A decrease in Bond Interest Revenue 
D)  No change in Investment in Bonds

Question 17

On January 1, 2011, Ailey Company purchased a $30,000, 8% bond, at face value. Interest is paid annually each January 1. The entry related to this investment on December 31, 2011, would include a

Accepted Answer

A)  Debit to Interest Receivable for $2,400 
B)  Credit to Interest Expense for $2,400 
C)  Debit to Interest Revenue for $2,400 
D)  Credit to Cash for $2,400 
A)  Debit to Interest Receivable for $2,400 
B)  Credit to Interest Expense for $2,400 
C)  Debit to Interest Revenue for $2,400 
D)  Credit to Cash for $2,400

Question 18

If 2,500 shares of stock are purchased for $90 per share and are sold one year later for $82 per share, what is the net gain or loss on sale? (Assume that there are no transaction costs.)

Accepted Answer

A)  $20,000 gain 
B)  $20,000 loss 
C)  $2,500 gain 
D)  $2,500 loss 
A)  $20,000 gain 
B)  $20,000 loss 
C)  $2,500 gain 
D)  $2,500 loss

Question 19

In June 2012, Barwick Company had excess cash that would not be needed until March 1, 2013. Management decided to invest the money in a short-term investment in trading securities. Barwick owned no investment securities before June 2012. The following transactions relate to these investments:
  
Give the journal entries necessary to account for the investment in Chula Corporation during 2012.

Accepted Answer

Give the journal entries neces

Question 20

Mel Company purchased $60,000 of Gibson Company's 20-year, 8 percent bonds at 98 on November 1, 2012. The bonds pay interest each January 1 and July 1, and they mature on July 1, 2029. Given this information, the entry to record the purchase of Gibson Company bonds would include a

Accepted Answer

A)  Debit to Interest Receivable of $800 
B)  Debit to Held-to-Maturity Securities of $60,000 
C)  Credit to Cash of $60,400 
D)  Credit to Interest Revenue of $1,600 
A)  Debit to Interest Receivable of $800 
B)  Debit to Held-to-Maturity Securities of $60,000 
C)  Credit to Cash of $60,400 
D)  Credit to Interest Revenue of $1,600

Accounting for investments under the equity method generally applies when the level of ownership in another company is at what percentage?

The total amount of interest earned when bonds are purchased at a premium is the amount of the cash interest payments

A financial instrument that represents actual ownership in a corporation is a(n)

A net unrealized increase in the value of available-for-sale securities (considered as a whole) should be reflected in the current financial statements as

Johnson Company owns 90% of the outstanding stock of Smith Company. The equity of the remaining 10% of Smith Company stock is called the

A financial instrument that carries with it the promise to pay interest payments and repay the principal amount is a(n)

In general, consolidated financial statements should be prepared

Consolidated financial statements are typically prepared when one company has

The amortization of a bond discount

Answer the following questions with respect to classifications of security:

The journal entry to record the amortization of a premium resulting from an investment in bonds would cause

On January 1, 2011, Ailey Company purchased a $30,000, 8% bond, at face value. Interest is paid annually each January 1. The entry related to this investment on December 31, 2011, would include a

If 2,500 shares of stock are purchased for $90 per share and are sold one year later for $82 per share, what is the net gain or loss on sale? (Assume that there are no transaction costs.)

Mel Company purchased $60,000 of Gibson Company's 20-year, 8 percent bonds at 98 on November 1, 2012. The bonds pay interest each January 1 and July 1, and they mature on July 1, 2029. Given this information, the entry to record the purchase of Gibson Company bonds would include a

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

Filters

Exam 12: Investments: Debt and Equity Securities

Accounting for investments under the equity method generally applies when the level of ownership in another company is at what percentage?

The total amount of interest earned when bonds are purchased at a premium is the amount of the cash interest payments

A financial instrument that represents actual ownership in a corporation is a(n)

A net unrealized increase in the value of available-for-sale securities (considered as a whole) should be reflected in the current financial statements as

Johnson Company owns 90% of the outstanding stock of Smith Company. The equity of the remaining 10% of Smith Company stock is called the

A financial instrument that carries with it the promise to pay interest payments and repay the principal amount is a(n)

In general, consolidated financial statements should be prepared

Consolidated financial statements are typically prepared when one company has

The amortization of a bond discount

Answer the following questions with respect to classifications of security:

The journal entry to record the amortization of a premium resulting from an investment in bonds would cause

On January 1, 2011, Ailey Company purchased a $30,000, 8% bond, at face value. Interest is paid annually each January 1. The entry related to this investment on December 31, 2011, would include a

If 2,500 shares of stock are purchased for $90 per share and are sold one year later for $82 per share, what is the net gain or loss on sale? (Assume that there are no transaction costs.)

Mel Company purchased $60,000 of Gibson Company's 20-year, 8 percent bonds at 98 on November 1, 2012. The bonds pay interest each January 1 and July 1, and they mature on July 1, 2029. Given this information, the entry to record the purchase of Gibson Company bonds would include a

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

Filters