Question 1

Significant influence equity investments must be accounted for using the equity method.

Accepted Answer

A) True 
 B)False

Question 2

Provide definitions for the following types of investments.
a.Held-to-maturity debt investment
b.Significant influence equity investment
c.Trading debt investment

Accepted Answer

a.Held-to-maturity debt investment - A d

Question 3

Which of the following is TRUE of trading debt investments?

Accepted Answer

A)  They are held for more than two years. 
B)  They are generally recorded as long-term investments. 
C)  They must be adjusted and reported at fair value at the end of each period. 
D)  They are always reported on the balance sheet at their historical cost. 
A)  They are held for more than two years. 
B)  They are generally recorded as long-term investments. 
C)  They must be adjusted and reported at fair value at the end of each period. 
D)  They are always reported on the balance sheet at their historical cost.

Question 4

Short-term investments ________.

Accepted Answer

A)  are debt and equity securities that the investor expects to hold for more than a year 
B)  are investments in debt securities or equity securities in which the investor holds less than 50 percent of the voting stock and that the investor plans to sell two years after the balance sheet date 
C)  are investments in debt and equity securities that are readily marketable and that the investor intends to convert to cash within one year 
D)  are investments in debt securities that the investor intends to hold until maturity 
A)  are debt and equity securities that the investor expects to hold for more than a year 
B)  are investments in debt securities or equity securities in which the investor holds less than 50 percent of the voting stock and that the investor plans to sell two years after the balance sheet date 
C)  are investments in debt and equity securities that are readily marketable and that the investor intends to convert to cash within one year 
D)  are investments in debt securities that the investor intends to hold until maturity

Question 5

Available-for-sale (AFS)debt investments are reported as ________ if the business expects to sell them within one year.

Accepted Answer

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

Question 6

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Accepted Answer

A) True 
 B)False

Question 7

Amazon Services,Inc.invests its excess cash in Nile Technologies,Inc.and acquires 6000 shares for $61.75 per share.Amazon Services,Inc.owns less than 2% of Nile's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.

Accepted Answer

A)  Equity Investments is debited for $370,500 
B)  Common Stock is debited for $370,500 
C)  Long-term Investments is credited for $370,500 
D)  An equity account is debited for $370,500 
A)  Equity Investments is debited for $370,500 
B)  Common Stock is debited for $370,500 
C)  Long-term Investments is credited for $370,500 
D)  An equity account is debited for $370,500

Question 8

Franklin Corporation invested $100,000 to acquire 20,000 shares of Hope Technologies,Inc.on March 1,2018.Hope pays a cash dividend of $0.25 per share on July 2,2019.The investment is classified as equity securities with no significant influence.Based on these two transactions,which of the following is TRUE of the accounting equation as of July 2,2019?

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 9

Under the equity method,the Equity Investments account is debited for the receipt of a dividend because the dividend increases the investee's equity.

Accepted Answer

A) True 
 B)False

Question 10

A subsidiary company is a company that ________.

Accepted Answer

A)  is controlled by another corporation 
B)  owns a controlling interest in another company 
C)  is the first to begin operations in an industry 
D)  has any level of investment in another company 
A)  is controlled by another corporation 
B)  owns a controlling interest in another company 
C)  is the first to begin operations in an industry 
D)  has any level of investment in another company

Question 11

National Financial Services,Inc.invested $21,000 to acquire 6250 shares of Stonebridge Investments,Inc.on March 15,2015.This investment represents less than 20% of the investee's voting stock.On May 7,2018,National Financial Services,Inc.sells 3000 shares for $19,250.When the journal entry to record the sale is made,________.

Accepted Answer

A)  Gain on Disposal will be credited 
B)  Equity Investments will be debited 
C)  Cash will be credited 
D)  Loss on Disposal will be debited 
A)  Gain on Disposal will be credited 
B)  Equity Investments will be debited 
C)  Cash will be credited 
D)  Loss on Disposal will be debited

Question 12

List and briefly describe the method used to account for investments in equity securities with more than 50% ownership.

Accepted Answer

Consolidation accounting is used by the

Question 13

For trading debt investments,provide the following:
• Reporting method used
• How unrealized holding gain or loss is reported
• Balance sheet effects
• Income statement effects
 $$\begin{array} { | l | l | } 
\hline \text { Trading Debt Investments: } &\quad\quad\quad \
\hline \text { Reporting method used } & \
\hline \text { How unrealized holding } & \
\text { gain or loss is reported } & \
\hline \text { Balance sheet effects } & \
\hline \text { Income statement effects } & \
\hline
\end{array}$$

Accepted Answer

None

Question 14

Long-term investments 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.

Accepted Answer

A) True 
 B)False

Question 15

Regarding debt securities,which of the following statements is incorrect?

Accepted Answer

A)  Debt securities include Treasury bills. 
B)  Debt securities represent a credit relationship with another company or governmental entity. 
C)  Debt securities typically pay interest for a fixed period. 
D)  Debt securities include common and preferred stock. 
A)  Debt securities include Treasury bills. 
B)  Debt securities represent a credit relationship with another company or governmental entity. 
C)  Debt securities typically pay interest for a fixed period. 
D)  Debt securities include common and preferred stock.

Question 16

Provide definitions for the following types of investments.
a.Controlling interest equity investment
b.Available-for-sale debt investment
c.No significant influence equity investment

Accepted Answer

a.Controlling interest equity investment

Question 17

Orbit Services,Inc.pays $700,000 to acquire 30% (200,000 shares)of the voting stock of State Investments,Inc.on January 5,2019.State Investments,Inc.declares and pays a cash dividend of $1.40 per share on June 14,2019.Which of the following is the correct journal entry for the transaction on June 14,2019?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-State Investments, Inc. } & 182,000 & \
\hline \text { Cash } & & 182,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Dividend Revenue } & & 182,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Equity Investments-State Investments, Inc. } & & 182,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Retained Earnings } & & 182,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-State Investments, Inc. } & 182,000 & \
\hline \text { Cash } & & 182,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Dividend Revenue } & & 182,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Equity Investments-State Investments, Inc. } & & 182,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 182,000 & \
\hline \text { Retained Earnings } & & 182,000 \
\hline
\end{array}$$

Question 18

The rate of return on total assets is calculated by first subtracting interest expense from net income and then dividing the result by average total assets.

Accepted Answer

A) True 
 B)False

Question 19

Premier Services,Inc.pays $1,350,000 to acquire 38% of voting stock of Blue Investments,Inc.on March 5,2019.Which of the following is the correct journal entry for the transaction?

Accepted Answer

A)  $$\begin{array} { | l | l | l | } 
\hline \text { Equity Investments-Blue Investments, Inc. } & 1,350,000 & \
\hline \text { Cash } & & 1,350,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Common Stock Holdings-Blue Investments, Inc. } & 1,350,000 & \
\hline \text { Cash } & & 1,350,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 1,350,000 & \
\hline \text { Equity Investments-Blue Investments, Inc. } & & 1,350,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 1,350,000 & \
\hline \text { Revenue from Investments } & & 1,350,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | l | } 
\hline \text { Equity Investments-Blue Investments, Inc. } & 1,350,000 & \
\hline \text { Cash } & & 1,350,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Common Stock Holdings-Blue Investments, Inc. } & 1,350,000 & \
\hline \text { Cash } & & 1,350,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 1,350,000 & \
\hline \text { Equity Investments-Blue Investments, Inc. } & & 1,350,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 1,350,000 & \
\hline \text { Revenue from Investments } & & 1,350,000 \
\hline
\end{array}$$

Question 20

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

Accepted Answer

A)  inventory 
B)  investee 
C)  interest 
D)  security 
A)  inventory 
B)  investee 
C)  interest 
D)  security

Exam 15: Investments

Significant influence equity investments must be accounted for using the equity method.

Provide definitions for the following types of investments. a.Held-to-maturity debt investment b.Significant influence equity investment c.Trading debt investment

Which of the following is TRUE of trading debt investments?

Short-term investments ________.

Available-for-sale (AFS)debt investments are reported as ________ if the business expects to sell them within one year.

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Amazon Services,Inc.invests its excess cash in Nile Technologies,Inc.and acquires 6000 shares for $61.75 per share.Amazon Services,Inc.owns less than 2% of Nile's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.

Under the equity method,the Equity Investments account is debited for the receipt of a dividend because the dividend increases the investee's equity.

A subsidiary company is a company that ________.

List and briefly describe the method used to account for investments in equity securities with more than 50% ownership.

Long-term investments 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.

Regarding debt securities,which of the following statements is incorrect?

Provide definitions for the following types of investments. a.Controlling interest equity investment b.Available-for-sale debt investment c.No significant influence equity investment

The rate of return on total assets is calculated by first subtracting interest expense from net income and then dividing the result by average total assets.

Premier Services,Inc.pays $1,350,000 to acquire 38% of voting stock of Blue Investments,Inc.on March 5,2019.Which of the following is the correct journal entry for the transaction?

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

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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