Question 1

Which of the following is true of available-for-sale (AFS)investments?

Accepted Answer

A) They are always reported as current assets in the balance sheet. 
B) They are always reported as long-term assets in the balance sheet. 
C) They are reported as current assets on the balance sheet only if the business expects to sell them within the first two years. 
D) They are reported as long-term assets on the balance sheet only if they are planned to be held for longer than a year. 
A) They are always reported as current assets in the balance sheet. 
B) They are always reported as long-term assets in the balance sheet. 
C) They are reported as current assets on the balance sheet only if the business expects to sell them within the first two years. 
D) They are reported as long-term assets on the balance sheet only if they are planned to be held for longer than a year.

Question 2

Which of the following is a condition to record an investment as an available-for-sale security?

Accepted Answer

A) The investor plans to hold the debt security until it matures. 
B) The investor should have a significant interest in the voting stock of the investee. 
C) It must be a debt security. 
D) The ownership in the voting stock of the investee should be less than 20 percent. 
A) The investor plans to hold the debt security until it matures. 
B) The investor should have a significant interest in the voting stock of the investee. 
C) It must be a debt security. 
D) The ownership in the voting stock of the investee should be less than 20 percent.

Question 3

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

Accepted Answer

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

Question 4

Unrealized holding gains or losses on trading investments are reported in the ________.

Accepted Answer

A)    
B) other revenues and expenses section of the income statement 
C) intangible assets section of the balance sheet 
D) accumulated other comprehensive income section of stockholder's equity 
A)    
B) other revenues and expenses section of the income statement 
C) intangible assets section of the balance sheet 
D) accumulated other comprehensive income section of stockholder's equity

Question 5

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 6

Sagal Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of Richmond Corporation,at face value,on June 30,2016.The bonds pay interest on June 30 and December 31.Sagal intends to hold the bonds to maturity.The bonds are disposed of,at face value,on June 30,2021.
Prepare the journal entry for December 31,2016 (omit the explanation).

Accepted Answer

@#IMG-DLM& Interest

Question 7

A(n)________ is an example of equity securities.

Accepted Answer

A) preferred stock 
B) municipal bond 
C) corporate bond 
D) Treasury bill 
A) preferred stock 
B) municipal bond 
C) corporate bond 
D) Treasury bill

Question 8

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 9

Companies make a year-end adjustment of the trading investment to bring the account to historical value.

Accepted Answer

A) True 
 B)False

Question 10

The Gain on Disposal of Trading Securities is reported in the ________.

Accepted Answer

A) other revenues and expenses section of the income statement 
B) stockholders' equity section of the income statement 
C) current assets section of the balance sheet 
D) fixed assets section of the balance sheet 
A) other revenues and expenses section of the income statement 
B) stockholders' equity section of the income statement 
C) current assets section of the balance sheet 
D) fixed assets section of the balance sheet

Question 11

If the Fair Value Adjustment account for trading investments has a debit balance,________.

Accepted Answer

A) it is subtracted from the Fixed Asset account to determine carrying value 
B) it is subtracted from the Short-term Investment-Trading account to determine carrying value 
C) it is added to the Short-term Investment-Trading account to determine carrying value 
D) it is added to the Fixed Asset account to determine carrying value 
A) it is subtracted from the Fixed Asset account to determine carrying value 
B) it is subtracted from the Short-term Investment-Trading account to determine carrying value 
C) it is added to the Short-term Investment-Trading account to determine carrying value 
D) it is added to the Fixed Asset account to determine carrying value

Question 12

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 13

Trading investments are categorized as noncurrent assets.

Accepted Answer

A) True 
 B)False

Question 14

Trading investments are categorized on the balance sheet as ________.

Accepted Answer

A) fixed assets 
B) current assets 
C) intangible assets 
D) short-term liabilities 
A) fixed assets 
B) current assets 
C) intangible assets 
D) short-term liabilities

Question 15

Held-to-maturity investments are normally reported at ________.

Accepted Answer

A) current market value 
B) average cost 
C) amortized cost 
D) historical cost 
A) current market value 
B) average cost 
C) amortized cost 
D) historical cost

Question 16

At the beginning of the year,Joan Steel,Inc.purchased 10,000 shares of Smith Metals,Inc.for $34,000 in exchange for cash and now holds 3.2% of the voting stock of Smith Metals,Inc.The management of Joan Steel intends to hold this stock for two years.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.

Accepted Answer

A) long-term investments 
B) cash 
C) total assets 
D) current assets 
A) long-term investments 
B) cash 
C) total assets 
D) current assets

Question 17

Becker Technologies invests $50,000 to acquire $50,000 face value,8%,five-year corporate bonds on January 2,2012.The bonds will mature on January 2,2017.The bonds pay interest semiannually on January 2 and July 2 each year until maturity.When Becker Technologies receives interest payments,how is the accounting equation affected?

Accepted Answer

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

Question 18

When a company collects the face value of a long-term investment in bonds at maturity,________.

Accepted Answer

A) total assets and equity of the firm remains unchanged 
B) both assets and liabilities of the firm increase 
C) both assets and equity of the firm increase 
D) liabilities decrease and equity increases 
A) total assets and equity of the firm remains unchanged 
B) both assets and liabilities of the firm increase 
C) both assets and equity of the firm increase 
D) liabilities decrease and equity increases

Question 19

Investment income may come from interest earned from debt investments,dividends earned from stock investments,and/or increases in the market value of the security.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is true of the Fair Value Adjustment account for trading investments?

Accepted Answer

A) It will always have a credit balance. 
B) It will always have a debit balance. 
C) It is considered as an adjunct account if it has a credit balance. 
D) It is considered as an adjunct account if it has a debit balance. 
A) It will always have a credit balance. 
B) It will always have a debit balance. 
C) It is considered as an adjunct account if it has a credit balance. 
D) It is considered as an adjunct account if it has a debit balance.

Exam 15: Investments

Which of the following is true of available-for-sale (AFS)investments?

Which of the following is a condition to record an investment as an available-for-sale security?

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

Unrealized holding gains or losses on trading investments are reported in the ________.

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

A(n)________ is an example of equity securities.

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

Companies make a year-end adjustment of the trading investment to bring the account to historical value.

The Gain on Disposal of Trading Securities is reported in the ________.

If the Fair Value Adjustment account for trading investments has a debit balance,________.

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

Trading investments are categorized as noncurrent assets.

Trading investments are categorized on the balance sheet as ________.

Held-to-maturity investments are normally reported at ________.

When a company collects the face value of a long-term investment in bonds at maturity,________.

Investment income may come from interest earned from debt investments,dividends earned from stock investments,and/or increases in the market value of the security.

Which of the following is true of the Fair Value Adjustment account for trading investments?

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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