Question 1

The company whose stock is owned by the parent company is called the

Accepted Answer

A)  controlled company. 
B)  subsidiary company. 
C)  investee company. 
D)  sibling company.

Question 2

On January 1, 2010, Bartley Corp. paid $800,000 for 100,000 shares of Oak Company's common stock, which represents 40% of Oak's outstanding common stock. Oak reported net income of $200,000 and paid cash dividends of $60,000 during 2010. Bartley should report the investment in Oak Company on its December 31, 2010, balance sheet at:

Accepted Answer

A)  $800,000 
B)  $744,000 
C)  $824,000 
D)  $856,000

Question 3

Presented below are two independent situations.
1. Grand Cosmetics acquired 10% of the 200,000 shares of common stock of Cey Fashion at a total cost of $13 per share on March 18, 2010. On June 30, Cey declared and paid a $60,000 dividend. On December 31, Cey reported net income of $110,000 for the year. At December 31, the market price of Cey Fashion was $15 per share. The stock is classified as available-for-sale.
2. Unruh, Inc., obtained significant influence over Olsen Corporation by buying 25% of Olsen 40,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2010. On June 15, Olsen declared and paid a cash dividend of $30,000. On December 31, Olsen reported a net income of $80,000 for the year.
Instructions
Prepare all the necessary journal entries for 2010 for (a)Grand Cosmetics and (b) Unruh, Inc.

Accepted Answer

The answer of Presented below are two independent situations.
1. Grand...

Question 4

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

Accepted Answer

A) True 
 B)False

Question 5

All of the following statements about short-term investments are true except:

Accepted Answer

A)  Short-term investments are also called marketable securities 
B)  Trading securities are always classified as short-term investments. 
C)  Short-term investments are listed below accounts receivable in the current asset section of the balance sheet. 
D)  Short-term assets must be readily marketable.

Question 6

A company may purchase a noncontrolling interest in another firm in a related industry

Accepted Answer

A)  to house excess cash until needed. 
B)  to generate earnings. 
C)  for strategic reasons. 
D)  for speculative reasons.

Question 7

When a company holds stock of several different corporations, the group of securities is identified as a(n)

Accepted Answer

A)  affiliated investment. 
B)  consolidated portfolio. 
C)  investment portfolio. 
D)  controlling interest.

Question 8

Short-term investments are securities held by a company that are

Accepted Answer

A)  readily marketable. 
B)  intended to be converted into cash within the next year. 
C)  readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer. 
D)  readily marketable and intended to be held until maturity.

Question 9

On January 2, Groneman Corporation acquired 30% of the outstanding common stock of Coulson Company for $550,000. For the year ended December 31, Coulson reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. At December 31, the carrying value of Groneman's investment in Coulson under the equity method is

Accepted Answer

A)  $541,000. 
B)  $550,000. 
C)  $577,000. 
D)  $568,000.

Question 10

The cost method of accounting for long-term investments in stock should be employed when the

Accepted Answer

A)  investor owns more than 50% of the investee's stock. 
B)  investor has significant influence on the investee and the stock held by the investor are marketable equity securities. 
C)  market value of the shares held is greater than their historical cost. 
D)  investor's influence on the investee is insignificant.

Question 11

Nagen Company had these transactions pertaining to stock investments:
Feb) 1 Purchased 3,000 shares of Horton Company (10%) for $49,800 cash plus brokerage fees of $1,200.
June 1 Received cash dividends of $2 per share on Horton stock.
Oct) 1 Sold 1,200 shares of Horton stock for $24,000 less brokerage fees of $600.
The entry to record the purchase of the Horton stock would include a

Accepted Answer

A)  debit to Stock Investments for $49,800. 
B)  credit to Cash for $49,800. 
C)  debit to Stock Investments for $51,000. 
D)  debit to Investment Expense for $1,200.

Question 12

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 13

Short-term investments are listed on the balance sheet immediately below

Accepted Answer

A)  cash. 
B)  inventory. 
C)  accounts receivable. 
D)  prepaid expenses.

Question 14

Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

Accepted Answer

A) True 
 B)False

Question 15

Jacobs Corporation makes a short-term investment in 150 shares of Starr Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $450. The entry for the purchase is

Accepted Answer

The answer of Jacobs Corporation makes a short-term investment in...

Question 16

On January 1, Kingman Corporation purchased a 30% equity in Lewis Company for $360,000. At December 31, Lewis declared and paid a $40,000 cash dividend and reported net income of $98,000. Prepare the necessary journal entries for Kingman Corporation.

Accepted Answer

The answer of On January 1, Kingman Corporation purchased a...

Question 17

Debt investments are recorded at the

Accepted Answer

A)  face value of the bonds purchased. 
B)  face value of the bonds purchased plus interest. 
C)  price paid for the bonds plus interest. 
D)  price paid for the bonds plus brokerage fees.

Question 18

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

Accepted Answer

The answer of An unrealized gain or loss on available-for-sale...

Question 19

Stone Company had the following transactions pertaining to short-term investments in equity securities.
Jan. 1 Purchased 1,500 shares of Quayle Company stock for $9,150 cash plus brokerage fees of $300.
June 1 Received cash dividends of $.50 per share on Quayle Company stock.
Sept. 15 Sold 400 shares of Quayle Company stock for $2,500 less brokerage fees of $100.
Dec. 1 Received cash dividends of $.50 per share on Quayle Company stock.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.

Accepted Answer

The answer of Stone Company had the following transactions pertaining...

Question 20

The account, Stock Investments, is

Accepted Answer

A)  a subsidiary ledger account. 
B)  a long-term liability account. 
C)  a general ledger control account. 
D)  another name for Debt Investments.

Exam 16: Investments

The company whose stock is owned by the parent company is called the

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

All of the following statements about short-term investments are true except:

A company may purchase a noncontrolling interest in another firm in a related industry

When a company holds stock of several different corporations, the group of securities is identified as a(n)

Short-term investments are securities held by a company that are

The cost method of accounting for long-term investments in stock should be employed when the

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Short-term investments are listed on the balance sheet immediately below

Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

Jacobs Corporation makes a short-term investment in 150 shares of Starr Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $450. The entry for the purchase is

On January 1, Kingman Corporation purchased a 30% equity in Lewis Company for $360,000. At December 31, Lewis declared and paid a $40,000 cash dividend and reported net income of $98,000. Prepare the necessary journal entries for Kingman Corporation.

Debt investments are recorded at the

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

The account, Stock Investments, is