Question 1

If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

Accepted Answer

A) True 
 B)False

Question 2

Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

Accepted Answer

A)  $125,000. 
B)  $197,000. 
C)  $173,000. 
D)  $77,000. 
E)  $370,000. 
A)  $125,000. 
B)  $197,000. 
C)  $173,000. 
D)  $77,000. 
E)  $370,000.

Question 3

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 journal entry to record the dividend on April 15 is:

Accepted Answer

A)  Debit Cash $8,050; credit Interest Revenue $8,050. 
B)  Debit Cash $7,350; credit Interest Revenue $7,350. 
C)  Debit Cash $8,050; credit Gain on Sale of Investments $8,050. 
D)  Debit Cash $8,050; credit Dividend Revenue $8,050. 
E)  Debit Cash $7,350; credit Dividend Revenue $7,350. 
A)  Debit Cash $8,050; credit Interest Revenue $8,050. 
B)  Debit Cash $7,350; credit Interest Revenue $7,350. 
C)  Debit Cash $8,050; credit Gain on Sale of Investments $8,050. 
D)  Debit Cash $8,050; credit Dividend Revenue $8,050. 
E)  Debit Cash $7,350; credit Dividend Revenue $7,350.

Question 4

Trading securities are:

Accepted Answer

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

Question 5

Hamasaki Company owns 30% of CDW Corp. stock. Hamasaki received $6,500 in cash dividends from its investment in CDW. The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

Accepted Answer

A) True 
 B)False

Question 6

What is comprehensive income and how is it usually reported in the financial statements?

Accepted Answer

Comprehensive income refers to all chang

Question 7

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, 20X1 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) $9,000; Credit Unrealized Loss - Equity $9,000. 
B)  Debit Unrealized Gain- Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000. 
C)  Debit Fair Value Adjustment - Available-for-Sale (LT) $9,000; Credit Unrealized Gain - Equity $9,000. 
D)  Debit Unrealized Loss - Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000. 
E)  Debit Unrealized Loss - Income $9,000; Credit Fair Value Adjustment - Available-for-Sale (ST) $9,000. 
A)  Debit Fair Value Adjustment - Available-for-Sale (LT) $9,000; Credit Unrealized Loss - Equity $9,000. 
B)  Debit Unrealized Gain- Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000. 
C)  Debit Fair Value Adjustment - Available-for-Sale (LT) $9,000; Credit Unrealized Gain - Equity $9,000. 
D)  Debit Unrealized Loss - Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000. 
E)  Debit Unrealized Loss - Income $9,000; Credit Fair Value Adjustment - Available-for-Sale (ST) $9,000.

Question 8

A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

Accepted Answer

A)  12.5%. 
B)  75.0%. 
C)  600.0%. 
D)  16.7%. 
E)  13.3%. 
A)  12.5%. 
B)  75.0%. 
C)  600.0%. 
D)  16.7%. 
E)  13.3%.

Question 9

Kendall Corp. purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry:

Accepted Answer

A)  debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000. 
B)  debit Cash, $75,000; credit Long-Term Investments-Trading, $75,000. 
C)  debit Long-Term Investments-HTM, $75,000; credit Cash, $75,000. 
D)  debit Cash, $75,000; credit Long-Term Investments-HTM, $75,000. 
E)  debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000. 
A)  debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000. 
B)  debit Cash, $75,000; credit Long-Term Investments-Trading, $75,000. 
C)  debit Long-Term Investments-HTM, $75,000; credit Cash, $75,000. 
D)  debit Cash, $75,000; credit Long-Term Investments-HTM, $75,000. 
E)  debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.

Question 10

When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

Accepted Answer

A) True 
 B)False

Question 11

Landers, Inc., held 1,500 of Shipman Company common stock with a cost of $36,900. These shares were classified as a long-term available-for-sale investment. It sold the shares on December 13 for $42,100. Prepare Lander's journal entry to record this sale.

Accepted Answer

None

Question 12

Comprehensive income includes all except:

Accepted Answer

A)  Gains and losses reported in the income statement. 
B)  All changes in equity for a period except those due to investments and distributions to owners. 
C)  Unrealized gains and losses on long-term available-for-sale securities. 
D)  Dividends paid to shareholders. 
E)  Revenues and expenses reported in the income statement. 
A)  Gains and losses reported in the income statement. 
B)  All changes in equity for a period except those due to investments and distributions to owners. 
C)  Unrealized gains and losses on long-term available-for-sale securities. 
D)  Dividends paid to shareholders. 
E)  Revenues and expenses reported in the income statement.

Question 13

Short-term investments are also called temporary investments or marketable securities.

Accepted Answer

A) True 
 B)False

Question 14

Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:

Accepted Answer

A)  The securities will have a maturity value of $300,000. 
B)  The debt securities should be recorded at cost, $300,000. 
C)  Interest Revenue should be credited when an interest payment is received. 
D)  The semiannual interest payment amount is $24,000. 
E)  The semiannual interest payment amount is $12,000. 
A)  The securities will have a maturity value of $300,000. 
B)  The debt securities should be recorded at cost, $300,000. 
C)  Interest Revenue should be credited when an interest payment is received. 
D)  The semiannual interest payment amount is $24,000. 
E)  The semiannual interest payment amount is $12,000.

Question 15

A company reported net income of $225,000, net sales of $2,500,000, and average total assets of
$2,100,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

Accepted Answer

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& & \
\

Question 16

Any cash dividends received from equity securities are recorded as Dividend Expense.

Accepted Answer

A) True 
 B)False

Question 17

Both U.S. GAAP and IFRS permit companies to use fair value in reporting available-for-sale and held-to-maturity securities.

Accepted Answer

A) True 
 B)False

Question 18

On June 18, Wyman Company (a U.S. Company) sold merchandise to the Nielsen Company of Denmark for €60,000 (Euros), with a payment due in 60 days. If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment, Wyman Company should recognize a foreign exchange gain or loss in the amount of:

Accepted Answer

A)  $12,600 loss. 
B)  $60,000 gain. 
C)  $68,400 loss. 
D)  $12,600 gain. 
E)  $60,000 loss. 
A)  $12,600 loss. 
B)  $60,000 gain. 
C)  $68,400 loss. 
D)  $12,600 gain. 
E)  $60,000 loss.

Question 19

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common 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 fair value of the remaining shares is $29.50 per share. The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

Accepted Answer

A)  Unrealized Gain -Equity; $10,295. 
B)  Unrealized Gain - Equity; $6,390. 
C)  Realized Gain -Equity; $8,050. 
D)  Unrealized Gain -Equity; $3,195. 
E)  Unrealized Loss -Equity; $2,245. 
A)  Unrealized Gain -Equity; $10,295. 
B)  Unrealized Gain - Equity; $6,390. 
C)  Realized Gain -Equity; $8,050. 
D)  Unrealized Gain -Equity; $3,195. 
E)  Unrealized Loss -Equity; $2,245.

Question 20

Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:

Accepted Answer

A)  Credit to Common Stock for $4,000. 
B)  Credit to Common Stock for $150,000. 
C)  Debit to Long-Term Investments-AFS for $4,000. 
D)  Credit Gain on Long-Term Investment $146,000. 
E)  Debit to Long-Term Investments-AFS for $150,000. 
A)  Credit to Common Stock for $4,000. 
B)  Credit to Common Stock for $150,000. 
C)  Debit to Long-Term Investments-AFS for $4,000. 
D)  Credit Gain on Long-Term Investment $146,000. 
E)  Debit to Long-Term Investments-AFS for $150,000.

Exam 15: Investments

If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

Trading securities are:

Hamasaki Company owns 30% of CDW Corp. stock. Hamasaki received $6,500 in cash dividends from its investment in CDW. The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

What is comprehensive income and how is it usually reported in the financial statements?

A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

Kendall Corp. purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry:

When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

Landers, Inc., held 1,500 of Shipman Company common stock with a cost of $36,900. These shares were classified as a long-term available-for-sale investment. It sold the shares on December 13 for $42,100. Prepare Lander's journal entry to record this sale.

Comprehensive income includes all except:

Short-term investments are also called temporary investments or marketable securities.

Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:

A company reported net income of $225,000, net sales of $2,500,000, and average total assets of $2,100,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

Any cash dividends received from equity securities are recorded as Dividend Expense.

Both U.S. GAAP and IFRS permit companies to use fair value in reporting available-for-sale and held-to-maturity securities.

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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