Question 1

Which of the following financial instruments pay dividends?

Accepted Answer

A) futures contracts 
B) real estate securities 
C) debt securities 
D) equity investments

Question 2

Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive Technologies on May 5, 2015. Which of the following will be included in the journal entry to record this transaction?

Accepted Answer

A) Long-term Investments-Trading Investments will be debited by $500,000. 
B) Long-term Investments-Olive Technologies will be debited by $500,000. 
C) Long-term Investments-Available-for-Sale will be debited by $500,000. 
D) Long-term Investments-Available-for-Sale will be credited by $500,000.

Question 3

When a company invests in a long-term bond investment by paying cash, the total assets remain unchanged

Accepted Answer

A) True 
 B)False

Question 4

The rate of return on total assets is calculated by subtracting interest expense from net income and dividing it by average assets.

Accepted Answer

A) True 
 B)False

Question 5

All available-for-sale investments are reported as long-term assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

Equity securities, in which the investor owns less than 20% ownership in the voting stock of the investee, can be either trading investments or available-for-sale investments.

Accepted Answer

A) True 
 B)False

Question 7

When a company receives a dividend payment for available-for-sale investments:

Accepted Answer

A) the total assets will remain unaffected. 
B) the long-term assets will decrease. 
C) the total equity will increase. 
D) the total liabilities will decrease.

Question 8

Aurum Services acquired 100,000 shares of Gamma Metals on January 1, 2015. Gamma pays a cash dividend of $0.25 per share on March 2, 2015. With the current investment, Aurum Services holds 8% of Gamma. In the journal entry on March 2, 2015:

Accepted Answer

A) Long-term Investments-Available-for-Sale will be credited. 
B) Dividend Revenue will be credited. 
C) Long-term Investments-Held-to-Maturity will be debited. 
D) Long-term Investments-Available-for-Sale will be debited.

Question 9

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the major difference between the accounting for equity securities and debt securities?

Accepted Answer

A) Debt securities are classified as liabilities, while equity securities are classified as assets. 
B) Most equity securities are classified as held-to-maturity and most debt securities are classified as trading investments. 
C) The revenue from debt securities is interest, while revenue from equity securities is dividends. 
D) All debt securities have a maturity date whereas only a few equity securities have a maturity date.

Question 11

Which of the following is true of consolidated statements?

Accepted Answer

A) They combine the balance sheets, income statements, and cash flow statements of the parent company with those of its peer group firms. 
B) They combine the balance sheets, income statements, and cash flow statements of the subsidiary company using the consolidation method. 
C) They combine the balance sheets, income statements, and cash flow statements of the subsidiary company with those of its investee firms. 
D) They combine the balance sheets, income statements, and cash flow statements of the parent company with those of its controlling interest affiliates.

Question 12

Available-for-sale (AFS)investments that are planned to be held longer than a year are reported as:

Accepted Answer

A) equity. 
B) current assets. 
C) long-term assets. 
D) either current assets or long-term assets.

Question 13

Jade Investments purchased 40% of the common stock of Ivory Corporation on March 1, 2014. Ivory Corporation reports a net income of $675,000 for the 2015 year. Which of the following is the correct journal entry?

Accepted Answer

A)   
B)   
C)   
D)

Question 14

Sinopia Corporation reported trading investments of $15,000 on December 31, 2015. The company realizes a decrease of $3,000 in the fair value of the trading investments by the end of the year 2016. Which of the following is the correct journal entry?

Accepted Answer

A)   
B)   
C)   
D)

Question 15

When a firm receives interest revenue on a bond, the equity remains unchanged.

Accepted Answer

A) True 
 B)False

Question 16

Based on the partial balance sheet of Marco Investments, find the rate of return on total assets.

Accepted Answer

A) 9.65% 
B) 15.25% 
C) 5.74% 
D) 6.91%

Question 17

Which of the following is true of securities?

Accepted Answer

A) They are commonly traded on an exchange. 
B) They are assets traded between companies working in the same industry. 
C) They are intangible assets traded in the stock exchange. 
D) They don't represent any ownership interests.

Question 18

When a company invests in a bond which has a maturity greater than one year and pays cash:

Accepted Answer

A) equity remains unchanged. 
B) current asset increases. 
C) liabilities increase. 
D) total assets increases.

Question 19

The fair value of a trading investment is the price that would be used if the company were to sell the investments on the market.

Accepted Answer

A) True 
 B)False

Question 20

The Long-term Investments account is credited for the receipt of a cash dividend on an equity-method investment because:

Accepted Answer

A) the dividend decreases the investee's equity. 
B) it increases the investor's investment. 
C) there is an increase in dividend liability. 
D) the dividend increases the total assets.

Exam 15: Investments

Which of the following financial instruments pay dividends?

Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive Technologies on May 5, 2015. Which of the following will be included in the journal entry to record this transaction?

When a company invests in a long-term bond investment by paying cash, the total assets remain unchanged

The rate of return on total assets is calculated by subtracting interest expense from net income and dividing it by average assets.

All available-for-sale investments are reported as long-term assets on the balance sheet.

Equity securities, in which the investor owns less than 20% ownership in the voting stock of the investee, can be either trading investments or available-for-sale investments.

When a company receives a dividend payment for available-for-sale investments:

Aurum Services acquired 100,000 shares of Gamma Metals on January 1, 2015. Gamma pays a cash dividend of $0.25 per share on March 2, 2015. With the current investment, Aurum Services holds 8% of Gamma. In the journal entry on March 2, 2015:

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Which of the following is the major difference between the accounting for equity securities and debt securities?

Which of the following is true of consolidated statements?

Available-for-sale (AFS) investments that are planned to be held longer than a year are reported as:

Jade Investments purchased 40% of the common stock of Ivory Corporation on March 1, 2014. Ivory Corporation reports a net income of $675,000 for the 2015 year. Which of the following is the correct journal entry?

Sinopia Corporation reported trading investments of $15,000 on December 31, 2015. The company realizes a decrease of $3,000 in the fair value of the trading investments by the end of the year 2016. Which of the following is the correct journal entry?

When a firm receives interest revenue on a bond, the equity remains unchanged.

Based on the partial balance sheet of Marco Investments, find the rate of return on total assets.

Which of the following is true of securities?

When a company invests in a bond which has a maturity greater than one year and pays cash:

The fair value of a trading investment is the price that would be used if the company were to sell the investments on the market.

The Long-term Investments account is credited for the receipt of a cash dividend on an equity-method investment because: