Question 1

When using the equity method, receipt of cash dividends increases the carrying (book) value of an investment in equity securities.

Accepted Answer

A) True 
 B)False

Question 2

Long-term investments are usually held as an investment of cash for use in current operations.

Accepted Answer

A) True 
 B)False

Question 3

Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries are known as:

Accepted Answer

A)  Consolidated financial statements 
B)  Statement of owner's equity 
C)  Equity financial statements 
D)  Investor financial statements 
E)  Combined financial statements 
A)  Consolidated financial statements 
B)  Statement of owner's equity 
C)  Equity financial statements 
D)  Investor financial statements 
E)  Combined financial statements

Question 4

Return on total assets can be separated into the profit margin ratio and total asset turnover.

Accepted Answer

A) True 
 B)False

Question 5

All of the following are true for Available-for-sale equity securities except:

Accepted Answer

A)  Are reported at market value on the balance sheet. 
B)  Are actively managed like Trading Securities. 
C)  May be classified as either short-term or long-term securities. 
D)  May earn dividends that are reported in that year's income statement. 
E)  Are recorded at cost when acquired. 
A)  Are reported at market value on the balance sheet. 
B)  Are actively managed like Trading Securities. 
C)  May be classified as either short-term or long-term securities. 
D)  May earn dividends that are reported in that year's income statement. 
E)  Are recorded at cost when acquired.

Question 6

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

Accepted Answer

A)  Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of the period. 
B)  The entire portfolio of trading securities is reported at is fair value. 
C)  An unrealized gain or loss is recorded with an adjusting entry when the securities are sold. 
D)  An unrealized gain or loss from a change in fair value is reported on the income statement. 
E)  An unrealized gain or loss is recorded with an adjusting entry at the end of each period. 
A)  Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of the period. 
B)  The entire portfolio of trading securities is reported at is fair value. 
C)  An unrealized gain or loss is recorded with an adjusting entry when the securities are sold. 
D)  An unrealized gain or loss from a change in fair value is reported on the income statement. 
E)  An unrealized gain or loss is recorded with an adjusting entry at the end of each period.

Question 7

A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company's profit margin, total asset turnover and return on total assets for Year 1 and Year 2. Comment on the results.

Accepted Answer

The company did not increase its profit

Question 8

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

Accepted Answer

A)  Credit to Dividend Revenue for $25,000. 
B)  Credit to Long-Term investments for $12,750. 
C)  Credit to Long-Term Investments for $25,000. 
D)  Debit to Dividend Revenue for $12,750. 
E)  Debit to Interest Revenue for $12,750. 
A)  Credit to Dividend Revenue for $25,000. 
B)  Credit to Long-Term investments for $12,750. 
C)  Credit to Long-Term Investments for $25,000. 
D)  Debit to Dividend Revenue for $12,750. 
E)  Debit to Interest Revenue for $12,750.

Question 9

At acquisition, debt securities are:

Accepted Answer

A)  Recorded at cost. 
B)  Recorded at the amount of interest that will be received over the life of the security. 
C)  Not recorded, because no interest is due yet. 
D)  Recorded at cost plus the amount of dividend income to be received. 
E)  Recorded at their cost, plus total interest that will be received over the life of the security. 
A)  Recorded at cost. 
B)  Recorded at the amount of interest that will be received over the life of the security. 
C)  Not recorded, because no interest is due yet. 
D)  Recorded at cost plus the amount of dividend income to be received. 
E)  Recorded at their cost, plus total interest that will be received over the life of the security.

Question 10

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

Accepted Answer

A)  $124,000. 
B)  $80,800. 
C)  $95,200. 
D)  $119,200. 
E)  $100,000. 
A)  $124,000. 
B)  $80,800. 
C)  $95,200. 
D)  $119,200. 
E)  $100,000.

Question 11

Investments in equity securities where the investor has a controlling influence are accounted for using the ________.

Accepted Answer

equity met

Question 12

All of the following statements regarding equity securities are true except:

Accepted Answer

A)  Equity securities should be recorded at cost when acquired. 
B)  Equity securities are valued at fair value if classified as significant influence securities. 
C)  Equity securities are valued at fair value if classified as trading securities. 
D)  Equity securities classified as available-for-sale record the dividend revenue when received. 
E)  Equity securities are valued at fair value if classified as available-for-sale securities. 
A)  Equity securities should be recorded at cost when acquired. 
B)  Equity securities are valued at fair value if classified as significant influence securities. 
C)  Equity securities are valued at fair value if classified as trading securities. 
D)  Equity securities classified as available-for-sale record the dividend revenue when received. 
E)  Equity securities are valued at fair value if classified as available-for-sale securities.

Question 13

A controlling investor is called the parent, and the investee company is called the subsidiary.

Accepted Answer

A) True 
 B)False

Question 14

Explain how to record the sale of trading securities.

Accepted Answer

When trading securities are sold, the di

Question 15

On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the bond purchase.

Accepted Answer

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Question 16

An investing company that owns more than ________ of another (investee) company's voting stock is presumed to have controlling influence over the investee.

Accepted Answer

The answer of An investing company that owns more than...

Question 17

Consolidated financial statements:

Accepted Answer

A)  Show the results of operations, cash flows, and the financial position of all entities under a parent's control, including all subsidiaries. 
B)  Include the investments in the subsidiaries on the balance sheet. 
C)  Show the results of operations, cash flows, and the financial position of the parent only. 
D)  Do not include a balance sheet. 
E)  Show the results of operations, cash flows, and the financial position of the subsidiary only. 
A)  Show the results of operations, cash flows, and the financial position of all entities under a parent's control, including all subsidiaries. 
B)  Include the investments in the subsidiaries on the balance sheet. 
C)  Show the results of operations, cash flows, and the financial position of the parent only. 
D)  Do not include a balance sheet. 
E)  Show the results of operations, cash flows, and the financial position of the subsidiary only.

Question 18

A company had net income of $45,000, net sales of $390,000, and average total assets of $450,000 for the current year. Calculate the company's profit margin, total asset turnover, and return on total assets.

Accepted Answer

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Question 19

Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

Accepted Answer

A) True 
 B)False

Question 20

On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share plus
$700 in broker commissions. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.

Accepted Answer

Dec. @#LAT-DLM& Long-Term Investments 20

Exam 15: Investments

When using the equity method, receipt of cash dividends increases the carrying (book) value of an investment in equity securities.

Long-term investments are usually held as an investment of cash for use in current operations.

Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries are known as:

Return on total assets can be separated into the profit margin ratio and total asset turnover.

All of the following are true for Available-for-sale equity securities except:

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

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

At acquisition, debt securities are:

Investments in equity securities where the investor has a controlling influence are accounted for using the ________.

All of the following statements regarding equity securities are true except:

A controlling investor is called the parent, and the investee company is called the subsidiary.

Explain how to record the sale of trading securities.

On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the bond purchase.

An investing company that owns more than ________ of another (investee) company's voting stock is presumed to have controlling influence over the investee.

Consolidated financial statements:

A company had net income of $45,000, net sales of $390,000, and average total assets of $450,000 for the current year. Calculate the company's profit margin, total asset turnover, and return on total assets.

Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

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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