Question 1

Under the equity method,dividend revenue is treated as ________.

Accepted Answer

A)  a debit to revenue from investments 
B)  dividend revenue 
C)  a return of capital 
D)  a credit to current assets 
A)  a debit to revenue from investments 
B)  dividend revenue 
C)  a return of capital 
D)  a credit to current assets

Question 2

The Gain on Disposal of Equity Investment is a(n)________.

Accepted Answer

A)  unrealized gain 
B)  contra revenue 
C)  element of other comprehensive income 
D)  temporary equity account 
A)  unrealized gain 
B)  contra revenue 
C)  element of other comprehensive income 
D)  temporary equity account

Question 3

On April 1,2018,Morton Company invests $50,000 in Johnson Company stock.Johnson pays Morton a $2,000 dividend on November 30,2018.Morton sells the Johnson stock on December 31,2018 for $54,500.Assume the investment is categorized as a short-term equity investment and that Morton does not have significant influence over Johnson.
Requirements:
1.Journalize the transactions for Morton's investment in Johnson's stock.
2.What was the net effect of the investment on Morton's net income for the year ended December 31,2018.

Accepted Answer

None

Question 4

A company may invest in debt or equity securities of other companies to ________.

Accepted Answer

A)  further enhance a business relationship with a key vendor 
B)  invest borrowed money in an effort to decrease the company's net income 
C)  weaken the relationship between the investing company and one of its vendors 
D)  allow the company to use investment income to decrease its annual dividend 
A)  further enhance a business relationship with a key vendor 
B)  invest borrowed money in an effort to decrease the company's net income 
C)  weaken the relationship between the investing company and one of its vendors 
D)  allow the company to use investment income to decrease its annual dividend

Question 5

Interest revenue earned on held-to-maturity debt investments is reported on the income statement in the ________ section.

Accepted Answer

A)  other income and expenses 
B)  current assets 
C)  operating income 
D)  noncontrolling interest 
A)  other income and expenses 
B)  current assets 
C)  operating income 
D)  noncontrolling interest

Question 6

Westbrook Financial Services,Inc.invested $15,000 to acquire 7250 shares of Cloud Investments,Inc.on March 15,2015.This investment represents less than 20% of the investee's voting stock.On May 7,2018,Westbrook Financial Services,Inc.sells 2250 shares for $12,250.Which of the following will be the correct journal entry for the May 7,2018 transaction? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Loss on Disposal } & 12,250 & \
\hline \text { Equity Investments } & & 12,250 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Gain on Disposal } & & 12,250 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Equity Investments } & & 4657.5 \
\hline \text { Gain on Disposal } & & 7592.5 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Equity Investments } & & 12,250 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Loss on Disposal } & 12,250 & \
\hline \text { Equity Investments } & & 12,250 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Gain on Disposal } & & 12,250 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Equity Investments } & & 4657.5 \
\hline \text { Gain on Disposal } & & 7592.5 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 12,250 & \
\hline \text { Equity Investments } & & 12,250 \
\hline
\end{array}$$

Question 7

A security is a ________.

Accepted Answer

A)  regulation dealing with the transactions of investments 
B)  system aimed at protecting the interests of the market participants 
C)  share or interest representing financial value 
D)  process related to the valuation of a financial instrument 
A)  regulation dealing with the transactions of investments 
B)  system aimed at protecting the interests of the market participants 
C)  share or interest representing financial value 
D)  process related to the valuation of a financial instrument

Question 8

Significant influence equity investments are reported as current assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the least desirable business reason for a company to invest in debt or equity securities?

Accepted Answer

A)  to generate investment income 
B)  to invest short-term, excess cash 
C)  to pursue certain business strategies 
D)  to weaken the relationship between the investing company and a key vendor. 
A)  to generate investment income 
B)  to invest short-term, excess cash 
C)  to pursue certain business strategies 
D)  to weaken the relationship between the investing company and a key vendor.

Question 10

Which of the following is TRUE of the comparison between equity securities and debt securities?

Accepted Answer

A)  Debt securities represent stock ownership in a company whereas equity securities represent a credit relationship with the company. 
B)  Equity securities may earn dividend revenue whereas debt securities earn interest revenue. 
C)  Neither debt securities nor equity securities mature at a stated date. 
D)  Both debt securities and equity securities pay interest. 
A)  Debt securities represent stock ownership in a company whereas equity securities represent a credit relationship with the company. 
B)  Equity securities may earn dividend revenue whereas debt securities earn interest revenue. 
C)  Neither debt securities nor equity securities mature at a stated date. 
D)  Both debt securities and equity securities pay interest.

Question 11

Wheat Corporation pays $532,000 for 100,000 shares to acquire 45% common stock of Grain Investments,Inc.on January 5,2018.Wheat Corporation sells 20,000 shares for $40,000 on January 6,2018.Which of the following is the correct journal entry for the transaction on January 6,2018? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 106,400 & \
\hline \text { Equity Investments-Grain Investments, Inc. } & & 106,400 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-Grain Investments, Inc. } & 106,400 & \
\hline \text { Cash } & & 40,000 \
\hline \text { Loss on Disposal } & & 66,400 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-Grain Investments, Inc. } & 106,400 & \
\hline \text { Cash } & & 106,400 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 40,000 & \
\hline \text { Loss on Disposal } & 66,400 & \
\hline \text { Equity Investments-Grain Investments, Inc. } & & 106,400 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 106,400 & \
\hline \text { Equity Investments-Grain Investments, Inc. } & & 106,400 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-Grain Investments, Inc. } & 106,400 & \
\hline \text { Cash } & & 40,000 \
\hline \text { Loss on Disposal } & & 66,400 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Equity Investments-Grain Investments, Inc. } & 106,400 & \
\hline \text { Cash } & & 106,400 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 40,000 & \
\hline \text { Loss on Disposal } & 66,400 & \
\hline \text { Equity Investments-Grain Investments, Inc. } & & 106,400 \
\hline
\end{array}$$

Question 12

For each of the following transactions related to Held-to-Maturity Debt securities,state the following:
(1)Which account(s)is (are)increased?
(2)Which account(s)is (are)decreased?
(3)What is the net effect on total assets and total equity? This net effect can be increase,decrease,or no net effect.
Transaction:
a.The investment was purchased at $50,000 (face value)plus brokerage fees of $2,000.
b.Semiannual interest of $1,500 was received.
c.The investment was disposed of at maturity.Cash in the amount of $50,000 was received.
 $$\begin{array} { | l | l | l | l | } 
\hline \text { Transaction } & \begin{array} { c } 
\text { Account(s) } \
\text { Increased }
\end{array} & \begin{array} { c } 
\text { Account(s) } \
\text { Decreased }
\end{array} & \begin{array} { c } 
\text { Total Assets and } \
\text { Total Equity: } \
\text { Increase, Decrease, } \
\text { or No Net Effect }
\end{array} \
\hline \mathbf { a } & & & \
\hline \mathbf { b } & & & \
\hline \mathbf { c } & & & \
\hline
\end{array}$$

Accepted Answer

None

Question 13

Which of the following is a condition for recording an available-for-sale debt investment?

Accepted Answer

A)  The investor intends to hold the debt security until it matures. 
B)  The investor intends to sell the security in the very near term. 
C)  The investment must be a debt security. 
D)  The investor has the ability to hold the security until it matures. 
A)  The investor intends to hold the debt security until it matures. 
B)  The investor intends to sell the security in the very near term. 
C)  The investment must be a debt security. 
D)  The investor has the ability to hold the security until it matures.

Question 14

The unrealized holding gains and losses on available-for-sale debt investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.

Accepted Answer

A) True 
 B)False

Question 15

If there is an unrealized holding gain on available-for-sale debt investments,it is reported ________.

Accepted Answer

A)  as an adjustment to stockholders' equity on the balance sheet 
B)  as a debit to the long-term liabilities 
C)  as a separate line item on the income statement 
D)  as a credit to the short-term assets 
A)  as an adjustment to stockholders' equity on the balance sheet 
B)  as a debit to the long-term liabilities 
C)  as a separate line item on the income statement 
D)  as a credit to the short-term assets

Question 16

Trading debt investments include ________.

Accepted Answer

A)  debt securities that the investor expects to hold longer than one year or debt securities that are not readily marketable 
B)  investments in debt securities that are not readily marketable and that the investor intends to hold until they mature 
C)  investments in debt securities that the investor intends to hold until they mature 
D)  debt securities that the investor plans to sell in the very near future 
A)  debt securities that the investor expects to hold longer than one year or debt securities that are not readily marketable 
B)  investments in debt securities that are not readily marketable and that the investor intends to hold until they mature 
C)  investments in debt securities that the investor intends to hold until they mature 
D)  debt securities that the investor plans to sell in the very near future

Question 17

Sparklers Services,Inc.pays $1,350,000 to acquire 35% of voting stock of Global Investments,Inc.on March 5,2018.When this transaction is recorded,the ________.

Accepted Answer

A)  total equity will increase 
B)  total assets will increase 
C)  total assets will decrease 
D)  total cash will decrease 
A)  total equity will increase 
B)  total assets will increase 
C)  total assets will decrease 
D)  total cash will decrease

Question 18

Which of the following is included in comprehensive income?

Accepted Answer

A)  Foreign currency translation adjustments 
B)  Owners' investments 
C)  Purchase of capital assets 
D)  Payment of dividends 
A)  Foreign currency translation adjustments 
B)  Owners' investments 
C)  Purchase of capital assets 
D)  Payment of dividends

Question 19

On October 1,2018,North Co.invested excess cash of $80,000 by purchasing bonds of South Inc.At year-end,December 31,2018,the market price of the bonds was $77,000.The investment is categorized as a trading debt investment.Journalize the adjusting entry needed at December 31,2018.Omit explanation.

Accepted Answer

\[\begin{array} { | c | r | r

Question 20

The Loss on Disposal of Equity Investments is reported in the ________.

Accepted Answer

A)  other income and (expenses) section of the income statement 
B)  stockholders' equity section of the income statement 
C)  stockholders' equity section of the balance sheet 
D)  losses section of the statement of retained earnings 
A)  other income and (expenses) section of the income statement 
B)  stockholders' equity section of the income statement 
C)  stockholders' equity section of the balance sheet 
D)  losses section of the statement of retained earnings

Exam 15: Investments

Under the equity method,dividend revenue is treated as ________.

The Gain on Disposal of Equity Investment is a(n)________.

A company may invest in debt or equity securities of other companies to ________.

Interest revenue earned on held-to-maturity debt investments is reported on the income statement in the ________ section.

A security is a ________.

Significant influence equity investments are reported as current assets on the balance sheet.

Which of the following is the least desirable business reason for a company to invest in debt or equity securities?

Which of the following is TRUE of the comparison between equity securities and debt securities?

Which of the following is a condition for recording an available-for-sale debt investment?

The unrealized holding gains and losses on available-for-sale debt investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.

If there is an unrealized holding gain on available-for-sale debt investments,it is reported ________.

Trading debt investments include ________.

Sparklers Services,Inc.pays $1,350,000 to acquire 35% of voting stock of Global Investments,Inc.on March 5,2018.When this transaction is recorded,the ________.

Which of the following is included in comprehensive income?

On October 1,2018,North Co.invested excess cash of $80,000 by purchasing bonds of South Inc.At year-end,December 31,2018,the market price of the bonds was $77,000.The investment is categorized as a trading debt investment.Journalize the adjusting entry needed at December 31,2018.Omit explanation.

The Loss on Disposal of Equity Investments is reported in the ________.

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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