Question 1

Unrealized gains and losses on available-for-sale securities are reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 2

Unrealized gains or losses on available-for-sale securities are reported where in the financial statements?

Accepted Answer

A) Nowhere since only realized gains are reported. 
B) In the "Other revenues and gains" or "Other expenses and losses" sections of the income statement. 
C) Below unusual items in the income statement. 
D) In the stockholders' equity section of the balance sheet.

Question 3

When investing excess cash for short periods of time, corporations invest in

Accepted Answer

A) stocks of companies in a related industry. 
B) debt securities. 
C) low-risk, highly liquid securities. 
D) stock securities.

Question 4

Assume that Oslo Corp.acquires 30% of Celdon Corp.for $360,000 on January 1, 2022.If Celdon declares and pays $120,000 in total dividends on February 14th, the journal entry would include a credit to

Accepted Answer

A) Dividend Revenue for $120,000. 
B) Dividend Revenue for $36,000. 
C) Stock Investments for $36,000. 
D) No entry is necessary.

Question 5

On January 1, 2022, the Express Corporation purchased 30% of the common stock outstanding of the Bangor Corporation for $300,000.During 2022, the Bangor Corporation reported net income of $120,000 and paid cash dividends of $30,000.The balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2022, is

Accepted Answer

A) $300,000. 
B) $330,000. 
C) $420,000. 
D) $327,000.

Question 6

Banks and financial institutions often purchase debt securities to

Accepted Answer

A) house excess cash until needed. 
B) generate earnings. 
C) meet strategic goals. 
D) improve their public image.

Question 7

The decision to make long-term capital investments is best evaluated without recognizing the time value of money.

Accepted Answer

A) True 
 B)False

Question 8

In accounting for debt investments, companies make entries for each of the following:

Accepted Answer

A) acquisition 
B) interest revenue 
C) sale 
D) share of investee income

Question 9

Under the equity method, the Stock Investments account is credited when the

Accepted Answer

A) investee reports net income. 
B) investee reports a net loss. 
C) investment is originally acquired. 
D) investee reports net income and when the investment is originally acquired.

Question 10

Why do pension and mutual funds invest in debt and equity securities?

Accepted Answer

A) They have excess cash. 
B) They want to generate earnings from investment income. 
C) They invest for strategic reasons. 
D) They invest for speculative reasons.

Question 11

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

Accepted Answer

A) True 
 B)False

Question 12

King Corporation purchased 2,000 shares of Cable common stock ($50 par) at $73 per share as a short-term investment.The shares were subsequently sold at $77 per share.The cost of the securities purchased and gain or loss on the sale were

Accepted Answer

The answer of King Corporation purchased 2,000 shares of Cable...

Question 13

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years.The fund pays interest of 4% compounded annually.The balance in the fund at the end of 5 years is computed by multiplying

Accepted Answer

A) $20,000 by the future value of 1 factor. 
B) $100,000 by 1.04. 
C) $100,000 by 1.20. 
D) $20,000 by the future value of an annuity factor.

Question 14

For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.

Accepted Answer

A) True 
 B)False

Question 15

At the end of the first year of operations, the total cost of the trading securities portfolio is $179,000 and the total fair value is $174,000.What should the financial statements show?

Accepted Answer

A) A reduction of an asset of $5,000 and a realized loss of $5,000. 
B) A reduction of an asset of $5,000 and an unrealized loss of $5,000 in the stockholders' equity section. 
C) A reduction of an asset of $5,000 in the current assets section and an unrealized loss of $5,000 under "Other expenses and losses." 
D) A reduction of an asset of $5,000 in the current assets section and a realized loss of $75,000 under "Other expenses and losses."

Question 16

Which can be computed using a financial calculator?

Accepted Answer

A) the future value of a single sum, and the future value of an annuity. 
B) the future value of a single sum, but not the future value of an annuity. 
C) neither the future value of a single sum, nor the future value of an annuity. 
D) the future value of an annuity, but not the future value of a single sum.

Question 17

Crosby Corporation sells 400 shares of common stock being held as an investment.The shares were acquired six months ago at a cost of $50 a share.Crosby sold the shares for $46 a share.The entry to record the sale is:

Accepted Answer

The answer of Crosby Corporation sells 400 shares of common...

Question 18

Which of the following discount rates will produce the smallest present value?

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
D) 4%

Question 19

Giphons Corp.has common stock of $3,500,000, Retained Earnings of $1,800,000, unrealized gains on trading securities of $60,000 and unrealized losses on available-for-sale securities of $110,000.What is the total amount of their stockholders' equity?

Accepted Answer

A) $5,190,000. 
B) $5,300,000. 
C) $5,240,000. 
D) $5,130,000.

Question 20

The equity method should generally be used to account for an investment in stock when the level of ownership is

Accepted Answer

A) less than 10%. 
B) between 10% and 20%. 
C) between 20% and 50%. 
D) 10% or more.

Exam 14: Understanding Investments in Debt and Equity Securities

Unrealized gains and losses on available-for-sale securities are reported on the income statement.

Unrealized gains or losses on available-for-sale securities are reported where in the financial statements?

When investing excess cash for short periods of time, corporations invest in

Assume that Oslo Corp.acquires 30% of Celdon Corp.for $360,000 on January 1, 2022.If Celdon declares and pays $120,000 in total dividends on February 14th, the journal entry would include a credit to

Banks and financial institutions often purchase debt securities to

The decision to make long-term capital investments is best evaluated without recognizing the time value of money.

In accounting for debt investments, companies make entries for each of the following:

Under the equity method, the Stock Investments account is credited when the

Why do pension and mutual funds invest in debt and equity securities?

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

King Corporation purchased 2,000 shares of Cable common stock ($50 par) at $73 per share as a short-term investment.The shares were subsequently sold at $77 per share.The cost of the securities purchased and gain or loss on the sale were

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years.The fund pays interest of 4% compounded annually.The balance in the fund at the end of 5 years is computed by multiplying

For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.

At the end of the first year of operations, the total cost of the trading securities portfolio is $179,000 and the total fair value is $174,000.What should the financial statements show?

Which can be computed using a financial calculator?

Crosby Corporation sells 400 shares of common stock being held as an investment.The shares were acquired six months ago at a cost of $50 a share.Crosby sold the shares for $46 a share.The entry to record the sale is:

Which of the following discount rates will produce the smallest present value?

Giphons Corp.has common stock of $3,500,000, Retained Earnings of $1,800,000, unrealized gains on trading securities of $60,000 and unrealized losses on available-for-sale securities of $110,000.What is the total amount of their stockholders' equity?

The equity method should generally be used to account for an investment in stock when the level of ownership is