Question 1

The fair value method is used to account for available-for-sale investments because they are normally sold in the near future at their current market value.

Accepted Answer

A) True 
 B)False

Question 2

When a company collects the face value of a bond investment at maturity,total assets increase.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The Long-term Investments account is debited for the receipt of a dividend on an equity method investment because the dividend increases the investee's equity.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Griffin Corporation invested $136,000 to acquire 27,000 shares of Delta Technologies,Inc.on March 1,2017.On July 2,2017,Delta pays a cash dividend of $1.00 per share.The investment is classified as an available-for-sale investment.Which of the following is the correct journal entry to record the transaction on July 2,2017?

Accepted Answer

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

Question 7

When there is an unrealized loss on trading investments,the ________ will decrease.

Accepted Answer

A) total equity 
B) cash 
C) total liabilities 
D) long-term investments 
A) total equity 
B) cash 
C) total liabilities 
D) long-term investments

Question 8

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 securit

Question 9

Beige Corporation pays $516,000 to acquire 42% of the equity securities of Olive Technologies,Inc.on May 5,2017.In the journal entry to record this transaction ________.

Accepted Answer

A) Long-term Investments-Trading Investments will be debited for $516,000 
B) Long-term Investments-Olive Technologies,Inc.will be debited for $516,000 
C) Long-term Investments-Available-for-Sale will be debited for $516,000 
D) Long-term Investments-Available-for-Sale will be credited for $516,000 
A) Long-term Investments-Trading Investments will be debited for $516,000 
B) Long-term Investments-Olive Technologies,Inc.will be debited for $516,000 
C) Long-term Investments-Available-for-Sale will be debited for $516,000 
D) Long-term Investments-Available-for-Sale will be credited for $516,000

Question 10

Long-term investments are investments in bonds or stocks in which the company intends to hold the investment for longer than one year.

Accepted Answer

A) True 
 B)False

Question 11

Available-for-sale (AFS)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 12

All available-for-sale (AFS)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 13

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 14

Accruex Corporation invests excess cash of $25,000 in corporate bonds on March 30,2017.The bonds will mature in two years from the date of purchase.When the bonds mature in 2019,Accruex plans to use the cash for its business expansion.Which of the following is included in the journal entry on March 30,2017?

Accepted Answer

A) a debit to Long-term Investments-Held-to-Maturity for $25,000 
B) a debit to Short-term Investments-U.S.Treasury Notes for $25,000 
C) a debit to Long-term Investments-Available-for-Sale for $25,000 
D) a credit to Long-term Investments-Available-for-Sale for $25,000 
A) a debit to Long-term Investments-Held-to-Maturity for $25,000 
B) a debit to Short-term Investments-U.S.Treasury Notes for $25,000 
C) a debit to Long-term Investments-Available-for-Sale for $25,000 
D) a credit to Long-term Investments-Available-for-Sale for $25,000

Question 15

If there is an unrealized holding gain on available-for-sale 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 assets 
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 assets 
C) as a separate line item on the income statement 
D) as a credit to the short-term assets

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Sinopia Corporation reported trading investments at fair value of $186,000 on December 31,2016.There is a decrease of $5,200 in the fair value of the trading investments by the end of the year 2017.Which of the following is the correct journal entry?

Accepted Answer

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

Question 18

Long-term investments ________.

Accepted Answer

A) include all debt securities that are trading investments or held-to-maturity investments 
B) are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less 
C) 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 
D) are investments in debt securities or equity securities in which the investor holds less than 20 percent of the voting stock and that the investor plans to sell in the very near future 
A) include all debt securities that are trading investments or held-to-maturity investments 
B) are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less 
C) 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 
D) are investments in debt securities or equity securities in which the investor holds less than 20 percent of the voting stock and that the investor plans to sell in the very near future

Question 19

Which of the following is an example of debt securities?

Accepted Answer

A) preferred stocks 
B) real estate 
C) common stocks 
D) corporate bonds 
A) preferred stocks 
B) real estate 
C) common stocks 
D) corporate bonds

Question 20

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 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 investments

Exam 15: Investments

The fair value method is used to account for available-for-sale investments because they are normally sold in the near future at their current market value.

When a company collects the face value of a bond investment at maturity,total assets increase.

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.

The Long-term Investments account is debited for the receipt of a dividend on an equity method investment because the dividend increases the investee's equity.

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

When there is an unrealized loss on trading investments,the ________ will decrease.

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.

Beige Corporation pays $516,000 to acquire 42% of the equity securities of Olive Technologies,Inc.on May 5,2017.In the journal entry to record this transaction ________.

Long-term investments are investments in bonds or stocks in which the company intends to hold the investment for longer than one year.

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

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

An equity security ________.

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

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

Sinopia Corporation reported trading investments at fair value of $186,000 on December 31,2016.There is a decrease of $5,200 in the fair value of the trading investments by the end of the year 2017.Which of the following is the correct journal entry?

Long-term investments ________.

Which of the following is an example of debt securities?

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

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.