Question 1

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Accepted Answer

A) True 
 B)False

Question 2

If the equity method is being used, the Revenue from Investment in Stock account is

Accepted Answer

A)  just another name for a Dividend Revenue account. 
B)  credited when dividends are declared by the investee. 
C)  credited when net income is reported by the investee. 
D)  debited when dividends are declared by the investee.

Question 3

On August 1, Dogwood Company buys 2,000 shares of XYZ common stock for $60,000 cash plus brokerage fees of $1,200. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

Accepted Answer

The answer of On August 1, Dogwood Company buys 2,000...

Question 4

Debt investments are investments in government and _____________ bonds.

Accepted Answer

The answer of Debt investments are investments in government and...

Question 5

Corporations invest in other companies for all of the following reasons except to

Accepted Answer

A)  house excess cash until needed. 
B)  generate earnings. 
C)  meet strategic goals. 
D)  increase trading of the other companies' stock.

Question 6

The Market Adjustment account can only have a credit balance or a zero balance.

Accepted Answer

A) True 
 B)False

Question 7

Information pertaining to long-term stock investments in 2010 by Tate Corporation follows:
Acquired 15% of the 250,000 shares of common stock of Barkly Company at a total cost of $8 per share on January 1, 2010. On July 1, Barkly Company declared and paid a cash dividend of $2 per share. On December 31, Barkly's reported net income was $654,000 for the year.
Obtained significant influence over Tolan Company by buying 30% of Tolan's 100,000 outstanding shares of common stock at a total cost of $22 per share on January 1, 2010. On June 15, Tolan Company declared and paid a cash dividend of $1.50 per share. On December 31, Tolan's reported net income was $280,000.
Instructions
Prepare all necessary journal entries for 2010 for Tate Corporation.

Accepted Answer

The answer of Information pertaining to long-term stock investments in...

Question 8

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Accepted Answer

A) True 
 B)False

Question 9

The following information is available for Clooney Corporation's available-for-sale securities at December 31, 2010.  
Instructions
Prepare the adjusting entry to record the securities at fair value at December 31, 2010.

Accepted Answer

The answer of The following information is available for Clooney...

Question 10

At the end of an accounting period, if the fair value of the trading portfolio is less than its cost, then the company should recognize an ______________ which is reported on the _________________.

Accepted Answer

The answer of At the end of an accounting period,...

Question 11

Decker Corporation purchased 1,000 shares of Kent common stock at $75 per share plus $3,000 brokerage fees as a short-term investment. The shares were subsequently sold at $80 per share less $3,400 brokerage fees. The cost of the securities purchased and gain or loss on the sale were

Accepted Answer

The answer of Decker Corporation purchased 1,000 shares of Kent...

Question 12

Patrick Company purchased 50 Issac Company 12%, 10-year, $1,000 bonds on January 1, 2010, for $52,000. Patrick Company also had to pay $500 of broker's fees. The bonds pay interest semiannually. On January 1, 2011, after receipt of interest, Patrick Company sold 30 of the bonds for $30,500.
Instructions
Prepare the journal entries to record the transactions described above.

Accepted Answer

The answer of Patrick Company purchased 50 Issac Company 12%,...

Question 13

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

Accepted Answer

A) True 
 B)False

Question 14

Barr Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2010 for $61,250. This includes a brokerage commission of $1,250.
The journal entry to record this investment includes a debit to

Accepted Answer

A)  Debt Investments for $60,000. 
B)  Debt Investments for $61,250. 
C)  Cash for $61,250. 
D)  Stock Investments for $60,000.

Question 15

In accounting for stock investments between 20% and 50%, the _______ method is used.

Accepted Answer

A)  consolidated statements 
B)  controlling interest 
C)  cost 
D)  equity

Question 16

Mouns Company owns 30% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income. Mouns Company's investment in Darian will increase Mouns' net income by

Accepted Answer

A)  $15,000. 
B)  $30,000. 
C)  $24,000. 
D)  $6,000.

Question 17

On January 1, 2010, Owen Company purchased 5,000 shares of Ace Company stock for $300,000. Nott's investment represents 40 percent of the total outstanding shares of Ace. During 2010, Ace paid total dividends of $100,000 and reported net income of $250,000. What revenue does Nott report related to this investment and what is the amount to be reported as an investment in Jen stock at December 31?

Accepted Answer

The answer of On January 1, 2010, Owen Company purchased...

Question 18

On January 1, 2010, Garner Corporation purchased 25% of the common stock outstanding of Landon Corporation for $250,000. During 2010, Landon Corporation reported net income of $80,000 and paid cash dividends of $40,000. The balance of the Stock Investments-Landon account on the books of Garner Corporation at December 31, 2010 is

Accepted Answer

A)  $250,000. 
B)  $290,000. 
C)  $330,000. 
D)  $260,000.

Exam 16: Investments

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

If the equity method is being used, the Revenue from Investment in Stock account is

On August 1, Dogwood Company buys 2,000 shares of XYZ common stock for $60,000 cash plus brokerage fees of $1,200. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

Debt investments are investments in government and _____________ bonds.

Corporations invest in other companies for all of the following reasons except to

The Market Adjustment account can only have a credit balance or a zero balance.

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

The following information is available for Clooney Corporation's available-for-sale securities at December 31, 2010. Instructions Prepare the adjusting entry to record the securities at fair value at December 31, 2010.

At the end of an accounting period, if the fair value of the trading portfolio is less than its cost, then the company should recognize an which is reported on the ___.

Decker Corporation purchased 1,000 shares of Kent common stock at $75 per share plus $3,000 brokerage fees as a short-term investment. The shares were subsequently sold at $80 per share less $3,400 brokerage fees. The cost of the securities purchased and gain or loss on the sale were

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

Barr Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2010 for $61,250. This includes a brokerage commission of $1,250. The journal entry to record this investment includes a debit to

In accounting for stock investments between 20% and 50%, the _______ method is used.

Mouns Company owns 30% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income. Mouns Company's investment in Darian will increase Mouns' net income by