Question 1

Refer to Sheppard Company.What will be the balance in the investment account at the end of December 31,2017?

Accepted Answer

A) $62,000 
B) $62,600 
C) $73,100 
D) $75,000

Question 2

Carly Enterprises purchased 1,000 shares of the 1,000,000 common shares outstanding in Crush Inc.Carly intends to hold onto this investment for the forseeable future.How should this investment be classified on the books of Carly?

Accepted Answer

A) held-to-maturity equity investment 
B) held-to-maturity debt investment 
C) available-for-sale equity investment 
D) trading equity investment

Question 3

On January 1,Seahawk Company purchased $770,000 on 12% bonds at face value.At December 31,the market value of the bonds was $810,000.
Required:
Prepare the valuation entry on December 31 of the current year assuming that the bonds are classified as:
1.Trading securities
2.Available for sale securities
3.Held to maturity securities

Accepted Answer

The answer of On January 1,Seahawk Company purchased $770,000 on...

Question 4

A company reports unrealized gains or losses from trading debt securities in other comprehensive income.

Accepted Answer

A) True 
 B)False

Question 5

Refer to Bosworth Corporation.What will be the interest revenue recorded on June 30,Year 1?

Accepted Answer

A) $37,500 
B) $45,000 
C) $41,756 
D) $41,688

Question 6

Goo Goo Enterprises invested in the bonds of Greater Glouster.These bonds pay interest of 3%.The effective rate of interest for similar bonds on the date of investment was 4%.Did Goo Goo purchase the bonds at a discount or premium?

Accepted Answer

A) These bonds were purchased at a discount because the stated rate exceeds the market rate. 
B) These bonds were purchased at a premium because the stated rate exceeds the market rate. 
C) These bonds were purchased at a discount because the market rate exceeds the stated rate. 
D) These bonds were purchased at a premium because the market rate exceeds the stated rate.

Question 7

Accounting for Trading securities remains unchanged if a company elects the fair value option for reporting this investment.Why?

Accepted Answer

The answer of Accounting for Trading securities remains unchanged if...

Question 8

What types of gains and losses resulting from the change in the value of investments must companies report?

Accepted Answer

The answer of What types of gains and losses resulting...

Question 9

On July 1,Year 1,Walters Corporation purchased as a short-term investment a $2 million face amount Kempff 6% bond for $1,800,000 plus accrued interest to yield 8%.The bonds mature on January 1,Year 11,and pay interest annually on January 1.On December 31,Year 5,the bonds had a fair value of $1,850,000.On March 1,Year 6,Walters sold the bond for $1,820,000 At what amount should Walters report the bond in its December 31,Year 5 balance sheet if it is classified as an available for sale security?

Accepted Answer

A) $1,800,000 
B) $1,820,000 
C) $1,850,000 
D) $2,000,000

Question 10

Trader Trust accepts a $500,000 non-interest bearing 10-year note from Coffee Co.in exchange for Cash on 1/1/16.Coffee Co.promises to repay $500,000 at maturity.The market rate on 1/1/16 was 4%.How much Interest Revenue will Trader Trust record on this note in 2016?

Accepted Answer

A) $0,this is a non-interest bearing note receivable. 
B) $13,511 
C) $20,000 
D) $13,652

Question 11

If a company has elected the fair value option,where are gains and losses resulting from adjusting these accounts to fair value reported?

Accepted Answer

A) Unrealized Gains are reported as part of Other Comprehensive Income while Unrealized losses are reported as part of Net Income. 
B) Unrealized Gains are reported as part of Net Income,while Unrealized Losses are reported as part of Other Comprehensive Income. 
C) Unrealized Gains and Losses are both reported as part of Net Income. 
D) Unrealized Gains and Losses are both reported as part of Other Comprehensive Income.

Question 12

Which of the following is a debt security for which management has both the positive intent and ability to hold the debt investment until all principal and interest is fully paid?

Accepted Answer

A) trading security 
B) held-to-maturity security 
C) available-for-sale security 
D) Not enough information to classify this security.

Question 13

When a note receivable is non-interest bearing,________.

Accepted Answer

A) the face value of the note equals the proceeds 
B) the carrying value of the note decreases over the life of the note receivable 
C) the effective rate of interest exceeds the prevailing rate 
D) the amount of discount amortized decreases each year over the life of the note

Question 14

For investments accounted for under the equity method,companies disclose the fair value for those investments.

Accepted Answer

A) True 
 B)False

Question 15

Unrealized gains and losses on investments in equity securities are reported for an investment in another company when the percentage of ownership in another company is ________.

Accepted Answer

A) less than 20% 
B) 20% to 50% 
C) 51% to 74% 
D) 75% or greater

Question 16

Boston Exporters purchased 40,000 of the 100,000 outstanding shares of Giant Distributors for $2,000,000.Boston has significant influence over Giant and will account for this investment using the equity method.During the year,Giant declared dividends of $140,000 and reported Net Income of $800,000.Record all necessary journal entries for Boston related to this investment for the year.Then,calculate the ending balance of the Investment in Giant account.

Accepted Answer

The answer of Boston Exporters purchased 40,000 of the 100,000...

Question 17

The fair value option improves financial reporting by enabling entities to offset volatility in reported earnings.How is this accomplished?

Accepted Answer

The answer of The fair value option improves financial reporting...

Question 18

If a company elects the fair value option to account for Trading Equity securities,what will be recorded differently for these trading securities?

Accepted Answer

A) Unrealized Gains and Losses will now be reported as part of Net Income instead of Other Comprehensive Income. 
B) Dividends received from the investee will now be credited to Dividend Revenue instead of as a reduction to the investment account. 
C) A proportionate share of net income will no longer need to be recorded for these trading securities. 
D) There is no difference in accounting for Trading securities as these are already accounted for using the fair value method.

Question 19

Falcon Wholesalers purchased equity securities during 2016 and 2017 that it classified as trading securities.It had not purchased equity securities prior to 2016,and has purchased no other equity securities besides the following:
  Prepare all necessary journal entries for 2016 and 2017 related to these securities.

Accepted Answer

The answer of Falcon Wholesalers purchased equity securities during 2016...

Question 20

Skywalker Limited purchased shares of Jedi Jewelers during 2015 for $124,000.Skywalker elected the fair value option for accounting for this investment.At year end 2015,2016,and 2017,this investment had a fair value of $120,000,$130,000,and $135,000,respectively.How will this investment be reported on the Balance Sheet at year-end,2017?

Accepted Answer

A) Investment in Jedi - $135,000 
B) Investment in Jedi - $130,000,plus Fair Value Adjustment - Fair Value Option - $5,000 
C) Investment In Jedi - $124,000 
D) Investment in Jedi - $124,000,plus Fair Value Adjustment - Fair Value Option - $11,000

Exam 18: Investing Assets