Question 1

Available-for-sale (AFS)investments that are expected to be held longer than a year are reported as ________.

Accepted Answer

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

Question 2

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 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 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 3

Equity securities,in which the investor owns less than 20% ownership in the voting stock of the investee,can be either trading investments or available-for-sale investments.

Accepted Answer

A) True 
 B)False

Question 4

In considering whether a company should invest in debt or equity securities of another company,which of the following statements is incorrect?

Accepted Answer

A) The company wants to make the best use of its excess cash to generate investment income. 
B) Investment income consists of interest earned from equity securities and dividends earned from debt investments. 
C) Investment income includes increases in the market value of debit or equity securities. 
D) The excess cash that can be invested could be the result of temporary or seasonal business fluctuations. 
A) The company wants to make the best use of its excess cash to generate investment income. 
B) Investment income consists of interest earned from equity securities and dividends earned from debt investments. 
C) Investment income includes increases in the market value of debit or equity securities. 
D) The excess cash that can be invested could be the result of temporary or seasonal business fluctuations.

Question 5

Which of the following is an example of a security?

Accepted Answer

A) dividends 
B) municipal bond 
C) interest expense 
D) depreciation 
A) dividends 
B) municipal bond 
C) interest expense 
D) depreciation

Question 6

Long Company owns a 2% investment in the common stock of Smith Company.The receipt of a cash dividend from Smith will have no effect on Long's total equity.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies,Inc.on March 1,2017.Delta pays a cash dividend of $0.25 per share on July 2,2018.The investment is classified as available-for-sale.Based on these two transactions,which of the following is true of the accounting equation as of July 2,2018?

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

Which of the following may pay dividends?

Accepted Answer

A) futures contracts 
B) real estate securities 
C) debt securities 
D) equity securities 
A) futures contracts 
B) real estate securities 
C) debt securities 
D) equity securities

Question 10

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 improve the company's net income 
C) to weaken the investing company's supply chain source 
D) to allow the company to use investment income to increase its annual dividend 
A) further enhance a business relationship with a key vendor 
B) invest borrowed money in an effort to improve the company's net income 
C) to weaken the investing company's supply chain source 
D) to allow the company to use investment income to increase its annual dividend

Question 11

Diamond Investments,Inc.purchased 40% of the common stock of Ivory Corporation on March 1,2016.Ivory Corporation reports a net income of $675,000 for the year 2017.Which of the following is true of the balance sheet on December 31,2017?

Accepted Answer

A) Total assets will remain unchanged. 
B) Total liabilities will decrease. 
C) Total equity will increase. 
D) Cash will increase. 
A) Total assets will remain unchanged. 
B) Total liabilities will decrease. 
C) Total equity will increase. 
D) Cash will increase.

Question 12

Green Services,Inc.invests its excess cash in Creative Technologies,Inc.and acquires 1,000 shares for $53.75 per share.Green Services,Inc.owns less than 1% of Creative's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.

Accepted Answer

A) Long-term Investments-Available-for-Sale is debited for $53,750 
B) Long-term Investments-Held-to-Maturity is debited for $53,750 
C) Long-term Investments-Trading Investments is credited for $53,750 
D) Long-term Investments-Significant Interest Investments is debited for $53,750 
A) Long-term Investments-Available-for-Sale is debited for $53,750 
B) Long-term Investments-Held-to-Maturity is debited for $53,750 
C) Long-term Investments-Trading Investments is credited for $53,750 
D) Long-term Investments-Significant Interest Investments is debited for $53,750

Question 13

Jade Investments,Inc.purchased 40% of the common stock of Ivory Corporation on March 1,2017.Ivory Corporation reports a net income of $715,000 for the 2017 year.Which of the following is the correct journal entry?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 14

An equity security represents a credit relationship with another company or governmental entity.

Accepted Answer

A) True 
 B)False

Question 15

A preferred stock is an example of a debt security.

Accepted Answer

A) True 
 B)False

Question 16

Janus,Inc.invests excess cash of $100,000 in corporate bonds on March 30,2017.The bonds mature 20 years from the date of purchase.Janus plans to hold the bonds until maturity.How does the March 30,2017 transaction affect the accounting equation?

Accepted Answer

A) liabilities will increase 
B) equity will decrease 
C) long-term assets will decrease 
D) total assets will remain unchanged 
A) liabilities will increase 
B) equity will decrease 
C) long-term assets will decrease 
D) total assets will remain unchanged

Question 17

At the end of each accounting period,trading securities must be adjusted and reported at fair value.

Accepted Answer

A) True 
 B)False

Question 18

When a company acquires a long-term bond investment,by paying cash,total assets remain unchanged.

Accepted Answer

A) True 
 B)False

Question 19

A parent 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 a trading 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 a trading investment in another company

Question 20

If a debt security is purchased at a discount,the discount must be amortized when the interest revenue is earned.

Accepted Answer

A) True 
 B)False

Exam 15: Investments

Available-for-sale (AFS)investments that are expected to be held longer than a year are reported as ________.

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

Equity securities,in which the investor owns less than 20% ownership in the voting stock of the investee,can be either trading investments or available-for-sale investments.

In considering whether a company should invest in debt or equity securities of another company,which of the following statements is incorrect?

Which of the following is an example of a security?

Long Company owns a 2% investment in the common stock of Smith Company.The receipt of a cash dividend from Smith will have no effect on Long's total equity.

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

Which of the following may pay dividends?

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

Diamond Investments,Inc.purchased 40% of the common stock of Ivory Corporation on March 1,2016.Ivory Corporation reports a net income of $675,000 for the year 2017.Which of the following is true of the balance sheet on December 31,2017?

Green Services,Inc.invests its excess cash in Creative Technologies,Inc.and acquires 1,000 shares for $53.75 per share.Green Services,Inc.owns less than 1% of Creative's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.

Jade Investments,Inc.purchased 40% of the common stock of Ivory Corporation on March 1,2017.Ivory Corporation reports a net income of $715,000 for the 2017 year.Which of the following is the correct journal entry?

An equity security represents a credit relationship with another company or governmental entity.

A preferred stock is an example of a debt security.

Janus,Inc.invests excess cash of $100,000 in corporate bonds on March 30,2017.The bonds mature 20 years from the date of purchase.Janus plans to hold the bonds until maturity.How does the March 30,2017 transaction affect the accounting equation?

At the end of each accounting period,trading securities must be adjusted and reported at fair value.

When a company acquires a long-term bond investment,by paying cash,total assets remain unchanged.

A parent company is a company that ________.

If a debt security is purchased at a discount,the discount must be amortized when the interest revenue is earned.

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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