Question 1

Trading debt investments are categorized as noncurrent assets.

Accepted Answer

A) True 
 B)False  False

Question 2

The unrealized holding gains and losses on available-for-sale debt investments are reported on the income statement.

Accepted Answer

A) True 
 B)False  False

Question 3

Complete the following statement:
When a company invests in equity securities with 20% to 50% ownership in the investee's ________ stock,the investor can ________ ________ the investee's decisions.These types of investments must be accounted for using the ________ method.

Accepted Answer

When a company invests in equity securities with 20% to 50% ownership in the investee's voting stock,the investor can significantly influence the investee's decisions.These types of investments must be accounted for using the equity method.

Question 4

National Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of International Corporation,at face value,on June 30,2018.The bonds pay interest on June 30 and December 31.At the date of purchase,National intended to hold the bonds to maturity and has the ability to hold the bonds to maturity.The bonds are disposed of on June 30,2023,the maturity date.
Prepare the journal entry for (omit the explanation)June 30,2023 (assume that the last interest payment has already been recorded).

Accepted Answer

\[\begin{array} { | l | l | l | l | } 
\

Question 5

Which type of debt security is always categorized as a current asset?

Accepted Answer

A)  available-for-sale debt investments 
B)  trading debt investments 
C)  held-to-maturity debt investments 
D)  Each of these choices can be categorized as long-term if the investor intends to hold the investment for longer than one year. 
A)  available-for-sale debt investments 
B)  trading debt investments 
C)  held-to-maturity debt investments 
D)  Each of these choices can be categorized as long-term if the investor intends to hold the investment for longer than one year.

Question 6

Investment income may come from interest earned from debt investments,dividends earned from stock investments,and/or increases in the market value of the security.

Accepted Answer

A) True 
 B)False

Question 7

The fair value of an investment is the price that ________.

Accepted Answer

A)  existed at the time of acquisition 
B)  would be received if the company were to sell the investment on the market 
C)  is always equal to the weighted average cost of the investment 
D)  is not relevant for trading debt investments 
A)  existed at the time of acquisition 
B)  would be received if the company were to sell the investment on the market 
C)  is always equal to the weighted average cost of the investment 
D)  is not relevant for trading debt investments

Question 8

Regarding accounting entries for debt securities,which of the following is TRUE?

Accepted Answer

A)  The receipt of interest revenue is recorded with a debit to Interest Revenue and a credit to Cash. 
B)  Investments in debt securities are recorded at cost, including any brokerage fees paid. 
C)  The receipt of interest revenue is recorded with a debit to Cash and a credit to Held-to-Maturity Debt Investments. 
D)  Debt securities disposed of at maturity are recorded with a debit to the Short-term or Long-term Investments account and a credit to Cash. 
A)  The receipt of interest revenue is recorded with a debit to Interest Revenue and a credit to Cash. 
B)  Investments in debt securities are recorded at cost, including any brokerage fees paid. 
C)  The receipt of interest revenue is recorded with a debit to Cash and a credit to Held-to-Maturity Debt Investments. 
D)  Debt securities disposed of at maturity are recorded with a debit to the Short-term or Long-term Investments account and a credit to Cash.

Question 9

A 9% rate of return on total assets means that the company earned $0.09 for each $1.00 invested in the company's average long-term assets.

Accepted Answer

A) True 
 B)False

Question 10

All available-for-sale (AFS)debt investments are reported on the balance sheet at ________.

Accepted Answer

A)  historical cost 
B)  replacement cost 
C)  current market value 
D)  net realizable value 
A)  historical cost 
B)  replacement cost 
C)  current market value 
D)  net realizable value

Question 11

Under the equity method,the investee must annually record its share of the investor's net income.

Accepted Answer

A) True 
 B)False

Question 12

Depending on the maturity date,held-to-maturity debt investments are categorized as current assets or long-term assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 13

A company can finance its assets by receiving cash or other assets from stockholders.

Accepted Answer

A) True 
 B)False

Question 14

For each of the following scenarios,state the type of investment:
1.Available-for-sale debt investment
2.No significant influence equity investment
3.Trading debt investment
4.Significant influence equity investment
5.Held-to-maturity debt investment
6.Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a.________ Golden Corp.owns a debt security in Yellow Corp.Golden plans on selling the debt after one year.
b.________ Horizon Inc.owns 18% of the voting stock of Sunset Corp.Horizon does not have the ability to participate in the decisions of Sunset.
c.________ Eastern Inc.owns 32% of Western's voting stock.Eastern has the ability to exert influence over Western.

Accepted Answer

The answer of For each of the following scenarios,state the...

Question 15

An equity security ________.

Accepted Answer

A)  represents a credit relationship with another company or governmental entity 
B)  is a standardized contract between two parties to acquire various forms of investments 
C)  represents stock ownership in another company and sometimes pays dividends 
D)  is a financial instrument that entitles the holder to receive periodic interest 
A)  represents a credit relationship with another company or governmental entity 
B)  is a standardized contract between two parties to acquire various forms of investments 
C)  represents stock ownership in another company and sometimes pays dividends 
D)  is a financial instrument that entitles the holder to receive periodic interest

Question 16

Hometown Resources,Inc.has a 9% rate of return on total assets and the industry average is 12%.How was the 9% rate of return on total assets computed? Comment on this information.

Accepted Answer

The 9% percent rate of return is compute

Question 17

Equity securities in which the investor lacks the ability to participate in the decisions of the investee company are classified as ________ investments.

Accepted Answer

A)  controlling interest equity 
B)  no significant influence equity 
C)  significant influence equity 
D)  available-for-sale equity 
A)  controlling interest equity 
B)  no significant influence equity 
C)  significant influence equity 
D)  available-for-sale equity

Question 18

Just as individuals invest in a variety of companies' stocks and bonds,the same is true for businesses.

Accepted Answer

A) True 
 B)False

Question 19

For no significant influence equity investments,provide the following:
a.Accounting method:
b.Balance Sheet effects:
c.Income Statement effects:

Accepted Answer

a.Accounting method: Fair Value: Unreali

Question 20

Marley Investments,Inc.purchased 45% of the common stock of Beige Corporation on January 1,2019.Beige Corporation reports a net income of $720,000 for the 2019 year.Which of the following is the correct journal entry?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Equity Investments-Beige Corporation } & 324,000 & \
\hline \text { Revenue from Investments } & & 324,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 324,000 & \
\hline \text { Revenue from Investments } & & 324,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Revenue from Investments } & 324,000 & \
\hline \text { Cash } & & 324,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Revenue from Investments } & 324,000 & \
\hline \text { Equity Investments-Beige Corporation } & & 324,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Equity Investments-Beige Corporation } & 324,000 & \
\hline \text { Revenue from Investments } & & 324,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 324,000 & \
\hline \text { Revenue from Investments } & & 324,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Revenue from Investments } & 324,000 & \
\hline \text { Cash } & & 324,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Revenue from Investments } & 324,000 & \
\hline \text { Equity Investments-Beige Corporation } & & 324,000 \
\hline
\end{array}$$

Exam 15: Investments

Trading debt investments are categorized as noncurrent assets.

The unrealized holding gains and losses on available-for-sale debt investments are reported on the income statement.

Complete the following statement: When a company invests in equity securities with 20% to 50% ownership in the investee's ________ stock,the investor can ________ ________ the investee's decisions.These types of investments must be accounted for using the ________ method.

Which type of debt security is always categorized as a current asset?

Investment income may come from interest earned from debt investments,dividends earned from stock investments,and/or increases in the market value of the security.

The fair value of an investment is the price that ________.

Regarding accounting entries for debt securities,which of the following is TRUE?

A 9% rate of return on total assets means that the company earned $0.09 for each $1.00 invested in the company's average long-term assets.

All available-for-sale (AFS)debt investments are reported on the balance sheet at ________.

Under the equity method,the investee must annually record its share of the investor's net income.

Depending on the maturity date,held-to-maturity debt investments are categorized as current assets or long-term assets on the balance sheet.

A company can finance its assets by receiving cash or other assets from stockholders.

An equity security ________.

Hometown Resources,Inc.has a 9% rate of return on total assets and the industry average is 12%.How was the 9% rate of return on total assets computed? Comment on this information.

Equity securities in which the investor lacks the ability to participate in the decisions of the investee company are classified as ________ investments.

Just as individuals invest in a variety of companies' stocks and bonds,the same is true for businesses.

For no significant influence equity investments,provide the following: a.Accounting method: b.Balance Sheet effects: c.Income Statement effects:

Marley Investments,Inc.purchased 45% of the common stock of Beige Corporation on January 1,2019.Beige Corporation reports a net income of $720,000 for the 2019 year.Which of the following is the correct journal entry?

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

Filters

Complete the following statement: When a company invests in equity securities with 20% to 50% ownership in the investee's stock,the investor can the investee's decisions.These types of investments must be accounted for using the method.