Question 1

Unrealized gains and losses on trading securities are reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 2

Long-term investments include:

Accepted Answer

A)  Investments in marketable bonds that are intended to be converted into cash in the short-term. 
B)  Investments intended to be converted to cash within one year. 
C)  Investments in marketable stocks that are intended to be converted into cash in the short-term. 
D)  Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term. 
E)  Only investments readily convertible to cash. 
A)  Investments in marketable bonds that are intended to be converted into cash in the short-term. 
B)  Investments intended to be converted to cash within one year. 
C)  Investments in marketable stocks that are intended to be converted into cash in the short-term. 
D)  Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term. 
E)  Only investments readily convertible to cash.

Question 3

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Accepted Answer

A) True 
 B)False

Question 4

On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1. The company intends to hold these bonds until they mature. Prepare the journal entries to record the bond purchase, the receipt of the first semiannual interest payment on October 1 of the current year, and the accrual of interest for the year-end December 31.

Accepted Answer

None

Question 5

Silver Era Co. exports Southwestern artwork to Japan. Prepare journal entries for the following transactions.
Nov 10 Sold artwork to Ito Company for ¥10,000,000, terms n/30. The exchange rate was $0.009 per yen.
Dec 5 Received payment from Ito Company for the November 10 sale. The exchange rate was $0.0087 per yen.

Accepted Answer

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Question 6

Select the correct statement from the following:

Accepted Answer

A)  Total asset turnover reflects the percent of net income in each dollar of net sales. 
B)  Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis. 
C)  High returns on total assets are desirable. 
D)  Profit margin reflects a company's ability to produce net sales from total assets. 
E)  Return on total assets can be separated into gross margin ratio and price-earnings ratio. 
A)  Total asset turnover reflects the percent of net income in each dollar of net sales. 
B)  Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis. 
C)  High returns on total assets are desirable. 
D)  Profit margin reflects a company's ability to produce net sales from total assets. 
E)  Return on total assets can be separated into gross margin ratio and price-earnings ratio.

Question 7

Available-for-sale debt securities are:

Accepted Answer

A)  Intended to be held to maturity. 
B)  Always classified as Long-Term Investments. 
C)  Reported at fair value on the balance sheet. 
D)  Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value. 
E)  Recorded at cost and remain at cost over the life of the investment. 
A)  Intended to be held to maturity. 
B)  Always classified as Long-Term Investments. 
C)  Reported at fair value on the balance sheet. 
D)  Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value. 
E)  Recorded at cost and remain at cost over the life of the investment.

Question 8

Short-term investments in held-to-maturity debt securities are accounted for using the:

Accepted Answer

A)  Fair value method with fair value adjustment to equity. 
B)  Cost method without amortization. 
C)  Cost method with amortization. 
D)  Equity method. 
E)  Fair value method with fair value adjustment to income. 
A)  Fair value method with fair value adjustment to equity. 
B)  Cost method without amortization. 
C)  Cost method with amortization. 
D)  Equity method. 
E)  Fair value method with fair value adjustment to income.

Question 9

On May 15, Tumbleweed, Inc. purchased 10,000 shares of Dansell Corp. for $80,000. The securities are considered available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On September 30, the stock had a market value of
$85,000. The $5,000 difference must be reported on Tumbleweed's income statement as a $5,000 gain.

Accepted Answer

A) True 
 B)False

Question 10

Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business, and are readily convertible to cash.

Accepted Answer

A) True 
 B)False

Question 11

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Accepted Answer

A)  Available-for-sale securities. 
B)  Held-to-maturity securities. 
C)  Trading securities. 
D)  Liquid securities. 
E)  Realizable securities. 
A)  Available-for-sale securities. 
B)  Held-to-maturity securities. 
C)  Trading securities. 
D)  Liquid securities. 
E)  Realizable securities.

Question 12

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Accepted Answer

A) True 
 B)False

Question 13

Short-term investments:

Accepted Answer

A)  Include funds earmarked for a special purpose such as bond sinking funds. 
B)  Include bonds not intended to be converted into cash. 
C)  Include stocks not intended to be converted into cash. 
D)  Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash. 
E)  Include sinking funds not intended to be converted into cash. 
A)  Include funds earmarked for a special purpose such as bond sinking funds. 
B)  Include bonds not intended to be converted into cash. 
C)  Include stocks not intended to be converted into cash. 
D)  Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash. 
E)  Include sinking funds not intended to be converted into cash.

Question 14

Profit margin reflects the percent of net income in each dollar of net sales.

Accepted Answer

A) True 
 B)False

Question 15

All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:

Accepted Answer

A)  Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account). 
B)  Under the consolidation method, investee and investor revenues and expenses are combined. 
C)  Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income. 
D)  U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests. 
E)  Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends. 
A)  Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account). 
B)  Under the consolidation method, investee and investor revenues and expenses are combined. 
C)  Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income. 
D)  U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests. 
E)  Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.

Question 16

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Accepted Answer

A) True 
 B)False

Question 17

A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its net sales were
$640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were $1,670,000 and
$1,712,000 in Year 2. Calculate the profit margin, total asset turnover and return on total assets for both years. Comment on the results.

Accepted Answer

The company increased its profit margin,

Question 18

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.
- The balance in the investment account on April 16 is:

Accepted Answer

A)  $191,810. 
B)  $191,660. 
C)  $199,710. 
D)  $200,110. 
E)  $192,060. 
A)  $191,810. 
B)  $191,660. 
C)  $199,710. 
D)  $200,110. 
E)  $192,060.

Question 19

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:
$\begin{array}{l|l|l|l|}
\hline \text { Available-for-Sale Securities } & \text { Cost } & \begin{array}{l}
\text { Fair } \
\text { Value }
\end{array} \
\hline \text { December 31, 20X1 } & \$ 250,000 & \$ 241,000 \
\hline \text { December 31, 20X2 } & \$ 340,000 & \$ 350,000 \
\hline \text { December 31, 20X3 } & \$ 410,000 & \$ 415,000
\end{array}$

Accepted Answer

A)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Loss - Equity $9,000; Credit Unrealized Gain - Equity, $10,000. 
B)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Loss - Equity $10,000. 
C)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Gain - Equity, $10,000. 
D)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Gain - Equity $19,000. 
E)  Debit Unrealized Gain - Equity $10,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $10,000. 
A)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Loss - Equity $9,000; Credit Unrealized Gain - Equity, $10,000. 
B)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Loss - Equity $10,000. 
C)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Gain - Equity, $10,000. 
D)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Gain - Equity $19,000. 
E)  Debit Unrealized Gain - Equity $10,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $10,000.

Question 20

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Accepted Answer

A)  Credit to Long-Term Investments for $38,800. 
B)  Debit to Dividends for $38,800. 
C)  Credit to Cash for $97,000. 
D)  Debit to Long-Term investments for $97,000. 
E)  Debit to Dividends for $97,000. 
A)  Credit to Long-Term Investments for $38,800. 
B)  Debit to Dividends for $38,800. 
C)  Credit to Cash for $97,000. 
D)  Debit to Long-Term investments for $97,000. 
E)  Debit to Dividends for $97,000.

Exam 15: Investments

Unrealized gains and losses on trading securities are reported on the income statement.

Long-term investments include:

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Select the correct statement from the following:

Available-for-sale debt securities are:

Short-term investments in held-to-maturity debt securities are accounted for using the:

Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business, and are readily convertible to cash.

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Short-term investments:

Profit margin reflects the percent of net income in each dollar of net sales.

All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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