Question 1

When a company receives interest revenue on a bond investment,total stockholders' equity remains unchanged.

Accepted Answer

A) True 
 B)False

Question 2

Autumn Services,Inc.acquired 140,000 shares of Spring Metals,Inc.on January 1,2018.Spring declares a cash dividend of $3.00 per share on February 15,2019 and pays the cash dividend on March 2,2019.With the current investment,Autumn Services,Inc.holds 8% of Spring's voting stock.Which of the following will be the correct journal entry for the day when the dividend payment is made (March 2,2019)?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 420,000 & \
\hline \text { Equity Investments } & & 420,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 420,000 & \
\hline \text { Retained Earnings } & & 420,000 \
\hline
\end{array}$$ 
C)  No Entry 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 420,000 & \
\hline \text { Dividend Receivable } & & 420,000 \
\hline
\end{array}$$

Question 3

No significant influence equity investments generally involve the ownership of less than 20% of the investee's voting stock.

Accepted Answer

A) True 
 B)False

Question 4

Jonas Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of Ridgeline Corporation,at face value,on June 30,2018.The bonds pay interest on June 30 and December 31.Jonas intends to hold the bonds to maturity.The bonds are disposed of,at face value,on June 30,2023.
Prepare the journal entry for December 31,2018 (omit the explanation).

Accepted Answer

The answer of Jonas Corporation has excess cash to invest...

Question 5

When a company collects the face value of a long-term investment in bonds at maturity,________.

Accepted Answer

A)  total assets and equity of the firm remains unchanged 
B)  both assets and liabilities of the firm increase 
C)  both assets and equity of the firm increase 
D)  liabilities decrease and equity increases

Question 6

At the end of each accounting period,trading debt securities must be adjusted and reported at fair value.

Accepted Answer

A) True 
 B)False

Question 7

________ investments are categorized as either current assets or long-term assets on the balance sheet,depending on the maturity date.

Accepted Answer

A)  Held-to-maturity debt 
B)  Serial bond debt 
C)  Trading debt 
D)  Available-for-sale debt

Question 8

Which of the following is TRUE of debt securities?

Accepted Answer

A)  Debt securities entitle the holder to receipt of a share of profit in the form of dividends. 
B)  Debt securities typically pay interest for a fixed period. 
C)  Debt securities include preferred stocks. 
D)  Debt securities represent ownership interests of the investors.

Question 9

Which of the following securities pay dividends?

Accepted Answer

A)  corporate bonds 
B)  common stocks 
C)  debt securities 
D)  Treasury bills

Question 10

Scott Enterprises has excess cash to invest and pays $200,000 to buy $200,000 face value,8%,five year bonds of Hamilton Company bonds on July 1,2018.The bonds are issued on July 1,2018 and pay interest on June 30 and December 31.Scott will record interest revenue every six months for five years.

Accepted Answer

A) True 
 B)False

Question 11

Companies invest in trading investments with the intent of ________.

Accepted Answer

A)  increasing the amount of long-term assets 
B)  gaining the controlling rights of the investee 
C)  holding the investment until maturity 
D)  generating a profit on a quick sale

Question 12

Leonard Technologies invests $68,000 to acquire $68,000 face value,10%,five-year corporate bonds on December 31,2014.The bonds will mature on December 31,2019.The bonds pay interest semiannually on December 31 and June 30 every year until maturity.Assume Leonard Technologies uses a calendar year.Based on the information provided,which of the following will be included in the journal entry for the transaction on December 31,2018?

Accepted Answer

A)  a credit to Interest Revenue for $6800 
B)  a debit to Interest Revenue for $6800 
C)  a credit to Interest Revenue for $3400 
D)  a debit to Interest Revenue for $3400

Question 13

Emerald Investments,Inc.purchased 40% of the common stock of Diamond Corporation on March 1,2018.Diamond Corporation reports a net income of $675,000 for the year 2019.Which of the following is TRUE of the balance sheet on December 31,2019?

Accepted Answer

A)  Total assets will remain unchanged. 
B)  Total liabilities will decrease. 
C)  Total equity will increase. 
D)  Cash will increase.

Question 14

A company that is controlled by another corporation is called a subsidiary company.

Accepted Answer

A) True 
 B)False

Question 15

Short-term investments are investments in debt and equity securities that the investor intends to hold for longer than one year.

Accepted Answer

A) True 
 B)False

Question 16

Unrealized gains or losses on available-for-sale debt investments occur when a company adjusts the investment to ________.

Accepted Answer

A)  fair value but has not yet disposed of the asset 
B)  fair value when an asset is disposed 
C)  average value but has not yet disposed of the asset 
D)  average value when an asset is disposed

Question 17

When a trading debt security is disposed,the fair value adjustment is used in determining the calculation of the gain or loss on disposal.

Accepted Answer

A) True 
 B)False

Question 18

Gain on Disposal of Equity Investments is a temporary equity account and is reported in the Other Income and (Expenses)section of the income statement.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is included in comprehensive income?

Accepted Answer

A)  Owners' investments 
B)  Purchase of capital assets 
C)  Preferred dividends 
D)  Deferred gains or losses from derivatives

Question 20

Available-for-sale (AFS)debt investments that are expected 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

Exam 15: Investments

When a company receives interest revenue on a bond investment,total stockholders' equity remains unchanged.

No significant influence equity investments generally involve the ownership of less than 20% of the investee's voting stock.

When a company collects the face value of a long-term investment in bonds at maturity,________.

At the end of each accounting period,trading debt securities must be adjusted and reported at fair value.

________ investments are categorized as either current assets or long-term assets on the balance sheet,depending on the maturity date.

Which of the following is TRUE of debt securities?

Which of the following securities pay dividends?

Scott Enterprises has excess cash to invest and pays $200,000 to buy $200,000 face value,8%,five year bonds of Hamilton Company bonds on July 1,2018.The bonds are issued on July 1,2018 and pay interest on June 30 and December 31.Scott will record interest revenue every six months for five years.

Companies invest in trading investments with the intent of ________.

Emerald Investments,Inc.purchased 40% of the common stock of Diamond Corporation on March 1,2018.Diamond Corporation reports a net income of $675,000 for the year 2019.Which of the following is TRUE of the balance sheet on December 31,2019?

A company that is controlled by another corporation is called a subsidiary company.

Short-term investments are investments in debt and equity securities that the investor intends to hold for longer than one year.

Unrealized gains or losses on available-for-sale debt investments occur when a company adjusts the investment to ________.

When a trading debt security is disposed,the fair value adjustment is used in determining the calculation of the gain or loss on disposal.

Gain on Disposal of Equity Investments is a temporary equity account and is reported in the Other Income and (Expenses)section of the income statement.

Which of the following is included in comprehensive income?

Available-for-sale (AFS) debt investments that are expected to be held longer than a year are reported as ________.