Question 1

Which of the following statements regarding debt securities is incorrect?

Accepted Answer

A)  Debt securities include Held-to-Maturity Debt Investments, Trading Debt Investments, and Available-for-Sale Debt Investments. 
B)  When recording the receipt of interest revenue on Trading Debt Investments, Interest Revenue is credited. 
C)  If a Held-to-Maturity Debt Investment is purchased at a discount or premium, the discount/premium must be amortized when the interest revenue is earned. 
D)  All investments in debt securities are categorized as long-term assets. 
A)  Debt securities include Held-to-Maturity Debt Investments, Trading Debt Investments, and Available-for-Sale Debt Investments. 
B)  When recording the receipt of interest revenue on Trading Debt Investments, Interest Revenue is credited. 
C)  If a Held-to-Maturity Debt Investment is purchased at a discount or premium, the discount/premium must be amortized when the interest revenue is earned. 
D)  All investments in debt securities are categorized as long-term assets.

Question 2

A parent company is a company that is controlled by another corporation.

Accepted Answer

A) True 
 B)False

Question 3

When a company uses excess cash to invest in equity securities with less than 20% ownership,its total equity will increase.

Accepted Answer

A) True 
 B)False

Question 4

Held-to-maturity debt investments are normally reported at current market value.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the major difference between the accounting for equity securities and debt securities?

Accepted Answer

A)  Debt securities are classified as liabilities, while equity securities are classified as assets. 
B)  Debt securities are classified as trading debt investments, while equity securities are classified as held-to-maturity equity investments. 
C)  Debt securities earn interest revenue, while equity securities may earn dividend revenue. 
D)  Debt securities of all types have a maturity date, while only a few equity securities have a maturity date. 
A)  Debt securities are classified as liabilities, while equity securities are classified as assets. 
B)  Debt securities are classified as trading debt investments, while equity securities are classified as held-to-maturity equity investments. 
C)  Debt securities earn interest revenue, while equity securities may earn dividend revenue. 
D)  Debt securities of all types have a maturity date, while only a few equity securities have a maturity date.

Question 6

Montgomery Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of Richmond Corporation,at face value,on June 30,2018.The bonds pay interest on June 30 and December 31.Montgomery intends to hold the bonds to maturity and has the ability to hold the bonds to maturity.The bonds are disposed of,at face value,on June 30,2023.
Prepare the journal entry for June 30,2018 (omit the explanation).

Accepted Answer

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Question 7

The rate of return on total assets is a ratio that measures a company's success in using its assets to earn income.

Accepted Answer

A) True 
 B)False

Question 8

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.

Accepted Answer

A) True 
 B)False

Question 9

When a company pays cash for a long-term investment in bonds,________.

Accepted Answer

A)  equity remains unchanged 
B)  current assets increase 
C)  liabilities increase 
D)  total assets increase 
A)  equity remains unchanged 
B)  current assets increase 
C)  liabilities increase 
D)  total assets increase

Question 10

Which of the following will be classified as an available-for-sale debt investment?

Accepted Answer

A)  debt securities which the investor intends to sell in the very near future 
B)  debt securities the investor intends to hold and has the ability to hold until they mature 
C)  all investments in Treasury bills 
D)  all debt securities that are not trading debt investments or held-to-maturity debt investments 
A)  debt securities which the investor intends to sell in the very near future 
B)  debt securities the investor intends to hold and has the ability to hold until they mature 
C)  all investments in Treasury bills 
D)  all debt securities that are not trading debt investments or held-to-maturity debt investments

Question 11

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

Accepted Answer

A) True 
 B)False

Question 12

When a company receives interest revenue on a long-term investment in bonds,________.

Accepted Answer

A)  long-term assets decrease 
B)  long-term assets increase 
C)  equity increases 
D)  current assets decrease 
A)  long-term assets decrease 
B)  long-term assets increase 
C)  equity increases 
D)  current assets decrease

Question 13

Which of the following accounting methods is used to account for controlling interest investments?

Accepted Answer

A)  cost method 
B)  acquisition method 
C)  consolidation method 
D)  discounted cash flow method 
A)  cost method 
B)  acquisition method 
C)  consolidation method 
D)  discounted cash flow method

Question 14

Trading debt investments are categorized as current assets.

Accepted Answer

A) True 
 B)False

Question 15

Debt securities represent a credit relationship with another company or governmental entity.

Accepted Answer

A) True 
 B)False

Question 16

All available-for-sale debt investments are reported as long-term assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

If the Fair Value Adjustment - Trading account for trading debt investments has a debit balance,it is ________.

Accepted Answer

A)  considered to be a contra account 
B)  subtracted from the Trading Debt Investment account to determine carrying value 
C)  added to the Trading Debt Investment account to determine carrying value 
D)  reported in the other income and expenses section of the income statement 
A)  considered to be a contra account 
B)  subtracted from the Trading Debt Investment account to determine carrying value 
C)  added to the Trading Debt Investment account to determine carrying value 
D)  reported in the other income and expenses section of the income statement

Question 18

Under the equity method,the Equity Investments account is credited for the receipt of a dividend because the dividend decreases the investor's investment.

Accepted Answer

A) True 
 B)False

Question 19

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31,2018.There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019.Which of the following is the correct journal entry?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Trading Debt Investments } & 3800 & \
\hline \text { Unrealized Holding Loss-Trading } & & 3800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Unrealized Holding Loss-Trading } & 3800 & \
\hline \text { Retained Earnings } & & 3800 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Unrealized Holding Loss-Trading } & 3800 & \
\hline \text { Fair Value Adjustment-Trading } & & 3800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Fair Value Adjustment-Trading } & 3800 & \
\hline \text { Unrealized Holding Loss-Trading } & & 3800 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Trading Debt Investments } & 3800 & \
\hline \text { Unrealized Holding Loss-Trading } & & 3800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Unrealized Holding Loss-Trading } & 3800 & \
\hline \text { Retained Earnings } & & 3800 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Unrealized Holding Loss-Trading } & 3800 & \
\hline \text { Fair Value Adjustment-Trading } & & 3800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Fair Value Adjustment-Trading } & 3800 & \
\hline \text { Unrealized Holding Loss-Trading } & & 3800 \
\hline
\end{array}$$

Question 20

Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.

Accepted Answer

A) True 
 B)False

Exam 15: Investments

Which of the following statements regarding debt securities is incorrect?

A parent company is a company that is controlled by another corporation.

When a company uses excess cash to invest in equity securities with less than 20% ownership,its total equity will increase.

Held-to-maturity debt investments are normally reported at current market value.

Which of the following is the major difference between the accounting for equity securities and debt securities?

The rate of return on total assets is a ratio that measures a company's success in using its assets to earn income.

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.

When a company pays cash for a long-term investment in bonds,________.

Which of the following will be classified as an available-for-sale debt investment?

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

When a company receives interest revenue on a long-term investment in bonds,________.

Which of the following accounting methods is used to account for controlling interest investments?

Trading debt investments are categorized as current assets.

Debt securities represent a credit relationship with another company or governmental entity.

All available-for-sale debt investments are reported as long-term assets on the balance sheet.

If the Fair Value Adjustment - Trading account for trading debt investments has a debit balance,it is ________.

Under the equity method,the Equity Investments account is credited for the receipt of a dividend because the dividend decreases the investor's investment.

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31,2018.There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019.Which of the following is the correct journal entry?

Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.

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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