Question 1

A(n)________ is represented by a certificate and is commonly traded on an exchange.

Accepted Answer

A) inventory 
B) intangible asset 
C) interest 
D) security 
A) inventory 
B) intangible asset 
C) interest 
D) security D

Question 2

Glitter Services pays $1,350,000 to acquire 35% of voting stock of Grey Investments on March 5, 2016. Which of the following is the correct journal entry for the transaction?

Accepted Answer

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

Question 3

Which of the following is the correct formula for calculating rate of return on total assets?

Accepted Answer

A) Rate of return on total assets = (Net income + Interest expense)/ Average total assets 
B) Rate of return on total assets = (Net income - Interest expense)/ Average total asset. 
C) Rate of return on total assets = (Net income - Interest expense)/ Total assets 
D) Rate of return on total assets = Total equity / Total assets 
A) Rate of return on total assets = (Net income + Interest expense)/ Average total assets 
B) Rate of return on total assets = (Net income - Interest expense)/ Average total asset. 
C) Rate of return on total assets = (Net income - Interest expense)/ Total assets 
D) Rate of return on total assets = Total equity / Total assets A

Question 4

Realized gains or losses on available-for-sale investments represent the difference between:

Accepted Answer

A) the historical cost and the average market value of the investment. 
B) the historical cost and the current market value of the investment. 
C) the cash received at time of disposal and the fair value of the investment. 
D) the cash received at time of disposal and the carrying amount of the investment. 
A) the historical cost and the average market value of the investment. 
B) the historical cost and the current market value of the investment. 
C) the cash received at time of disposal and the fair value of the investment. 
D) the cash received at time of disposal and the carrying amount of the investment.

Question 5

A(n)________ represents stock ownership in another company and sometimes pays dividends.

Accepted Answer

A) debt security 
B) forward contracts 
C) futures contract 
D) equity security 
A) debt security 
B) forward contracts 
C) futures contract 
D) equity security

Question 6

Joan Steel purchases 10,000 shares of Smith Metals for $34,000 in exchange of cash and now holds 3.2% voting stock of Smith Metals. Assuming no other transaction happened during the year, the ________ in the balance sheet will increase.

Accepted Answer

A) long-term investments 
B) cash 
C) total assets 
D) current assets 
A) long-term investments 
B) cash 
C) total assets 
D) current assets

Question 7

The fair value of an investment is the price:

Accepted Answer

A) at the time of acquisition of the investments. 
B) that would be used if the company were to sell the investments on the market. 
C) that is always equal to the weighted average cost of the investment. 
D) that is equal to the average cost of the investment during the holding period. 
A) at the time of acquisition of the investments. 
B) that would be used if the company were to sell the investments on the market. 
C) that is always equal to the weighted average cost of the investment. 
D) that is equal to the average cost of the investment during the holding period.

Question 8

Significant interest investments must be accounted for using the:

Accepted Answer

A) equity method. 
B) consolidation method. 
C) discounted cash flow method. 
D) acquisition method. 
A) equity method. 
B) consolidation method. 
C) discounted cash flow method. 
D) acquisition method.

Question 9

Jane Company has excess cash of $100,000 and invests the same amount in corporate bonds on March 30, 2015 that mature twenty years from the date of purchase. The company plans to keep the bonds until maturity. Based on the information provided, which of the following is true of the balance sheet line items on March 30, 2015?

Accepted Answer

A) Liabilities will increase. 
B) Equity will decrease. 
C) Long-term assets will decrease. 
D) Total assets will remain unchanged. 
A) Liabilities will increase. 
B) Equity will decrease. 
C) Long-term assets will decrease. 
D) Total assets will remain unchanged.

Question 10

Significant interest investments are reported as ________ on the balance sheet.

Accepted Answer

A) current assets 
B) either current assets or current liabilities 
C) long-term assets 
D) either current assets or long-term assets. 
A) current assets 
B) either current assets or current liabilities 
C) long-term assets 
D) either current assets or long-term assets.

Question 11

Realized gains or losses occur when a company adjusts an investment to fair value but have not yet disposed of the investment.

Accepted Answer

A) True 
 B)False

Question 12

Long-term investments:

Accepted Answer

A) should be reported in the liabilities section of the balance sheet. 
B) are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less. 
C) include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable. 
D) are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future. 
A) should be reported in the liabilities section of the balance sheet. 
B) are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less. 
C) include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable. 
D) are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future.

Question 13

Maize Corporation pays $500,000 for 100,000 shares to acquire 40% of Teal Investments on January 5, 2016. Maize Corporation sells 10,000 shares for $40,000 on January 6, 2016. Which of the following is the correct journal entry for the transaction on January 6, 2016?

Accepted Answer

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

Question 14

Trading investments are categorized in the balance sheet as:

Accepted Answer

A) fixed assets. 
B) current assets. 
C) intangible assets. 
D) short-term liabilities. 
A) fixed assets. 
B) current assets. 
C) intangible assets. 
D) short-term liabilities.

Question 15

Gain on Disposal of a trading investment is an equity account and is reported in the Other Revenues and (Expenses)section of the income statement.

Accepted Answer

A) True 
 B)False

Question 16

Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies on March 1, 2015. Delta pays a cash dividend of $0.25 per share on July 2, 2015. The investment is classified as an available-for-sale investment. Based on the information provided, which of the following is true of the balance sheet as of July 2, 2015?

Accepted Answer

A) Total assets in the balance sheet will remain unchanged. 
B) Current assets in the balance sheet will remain unchanged. 
C) Equity in the balance sheet will increase. 
D) Total liabilities in the balance sheet will increase. 
A) Total assets in the balance sheet will remain unchanged. 
B) Current assets in the balance sheet will remain unchanged. 
C) Equity in the balance sheet will increase. 
D) Total liabilities in the balance sheet will increase.

Question 17

Which of the following is true of the Fair Value Adjustment account for trading investments?

Accepted Answer

A) It will always have a credit balance. 
B) It will always have a debit balance. 
C) It is considered as an adjunct account if it has a credit balance. 
D) It is considered as an adjunct account if it has a debit balance. 
A) It will always have a credit balance. 
B) It will always have a debit balance. 
C) It is considered as an adjunct account if it has a credit balance. 
D) It is considered as an adjunct account if it has a debit balance.

Question 18

The rate of return on total assets is a ratio that measures the success a company has in using its assets to earn income.

Accepted Answer

A) True 
 B)False

Question 19

The rate of return on total assets measures:

Accepted Answer

A) a company's ability to meet its short-term obligations. 
B) a company's ability to repay its long-term debt. 
C) a company's success in using assets to earn a profit. 
D) a company's investing flexibility. 
A) a company's ability to meet its short-term obligations. 
B) a company's ability to repay its long-term debt. 
C) a company's success in using assets to earn a profit. 
D) a company's investing flexibility.

Question 20

In the journal entry for the dividends received for available-for-sale investments, the Dividend Revenue account will be debited.

Accepted Answer

A) True 
 B)False

Exam 15: Investments

A(n)________ is represented by a certificate and is commonly traded on an exchange.

Glitter Services pays $1,350,000 to acquire 35% of voting stock of Grey Investments on March 5, 2016. Which of the following is the correct journal entry for the transaction?

Which of the following is the correct formula for calculating rate of return on total assets?

Realized gains or losses on available-for-sale investments represent the difference between:

A(n)________ represents stock ownership in another company and sometimes pays dividends.

Joan Steel purchases 10,000 shares of Smith Metals for $34,000 in exchange of cash and now holds 3.2% voting stock of Smith Metals. Assuming no other transaction happened during the year, the ________ in the balance sheet will increase.

The fair value of an investment is the price:

Significant interest investments must be accounted for using the:

Significant interest investments are reported as ________ on the balance sheet.

Realized gains or losses occur when a company adjusts an investment to fair value but have not yet disposed of the investment.

Long-term investments:

Maize Corporation pays $500,000 for 100,000 shares to acquire 40% of Teal Investments on January 5, 2016. Maize Corporation sells 10,000 shares for $40,000 on January 6, 2016. Which of the following is the correct journal entry for the transaction on January 6, 2016?

Trading investments are categorized in the balance sheet as:

Gain on Disposal of a trading investment is an equity account and is reported in the Other Revenues and (Expenses)section of the income statement.

Which of the following is true of the Fair Value Adjustment account for trading investments?

The rate of return on total assets is a ratio that measures the success a company has in using its assets to earn income.

The rate of return on total assets measures:

In the journal entry for the dividends received for available-for-sale investments, the Dividend Revenue account will be debited.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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