Question 1

Which of the following is true regarding the provisions of IAS 39?

Accepted Answer

A)  IAS 39 does not require unrealized gains and losses on trading securities to be recognized as part of net income. 
B)  IAS 39 requires gains and losses on available for sale securities to be recognized as part of net income. 
C)  IAS 39 allows companies to choose between recognizing gains and losses on available-for-sale securities as part of net income or as part of stockholders' equity. 
D)  IAS 39 allows companies to choose between recognizing gains and losses on trading securities as part of net income or as part of stockholders' equity.

Question 2

During 2013,Rubble Company purchased marketable equity securities as a short-term investment and classified them as trading securities.The cost and market value at December 31,2013,were as follows:  Rubble sold 1,000 shares of Company Y stock on March 16,2014,for $24 per share,incurring $1,300 in brokerage commissions and taxes.On the sale,Rubble should report a realized loss of

Accepted Answer

A)  $0. 
B)  $1,550 
C)  $2,300 
D)  $2,800

Question 3

On January 1,2014,Bijou Company purchased investment securities costing $3,000 and classified them as available-for-sale.During 2014,Bijou Company sold a portion of these available-for-sale securities with a cost of $1,800 for $1,500.The market value of the remainder of these securities available-for-sale at December 31,2014,was $1,300.Bijou prepares its statement of cash flows using the indirect method. Which of the following represents the effect of these transactions on the statement of cash flows for Bijou Company for the year ending December 31,2014?
Operating Activities Investing Activities

Accepted Answer

A)  $200 increase $1,500 decrease 
B)  $300 decrease $1,400 decrease 
C)  $300 increase $1,400 decrease 
D)  $300 increase $1,500 decrease

Question 4

Changes in fair value of securities are reported in the stockholders' equity section of the balance sheet for which type of securities?

Accepted Answer

A)  Marketable equity securities 
B)  Available-for-sale securities 
C)  Trading securities 
D)  Held-to-maturity securities

Question 5

Jordan,Inc. ,loaned Julius Company $40,000 on January 1,2010.The 8 percent,7-year,simple-interest loan note called for annual interest payments each December 31.The note is due December 31,2023.Julius made the required interest payments through December 31,2013.In early January 2014,Julius began to default on some of its other debts and asked Jordan to renegotiate the original debt agreement,including an extension of the maturity date.Jordan refused but could see that the remaining scheduled payments on the loan were in jeopardy.
Jordan reevaluated the Julius note and estimated that the remaining interest payments would be only three-fourths of the original amount (based on the original principal amount),and that only one-half of the principal amount would be collected.
Jordan uses the interest method to account for interest after recording a note impairment.
Required:

Accepted Answer

The answer of Jordan,Inc. ,loaned Julius Company $40,000 on January...

Question 6

Other-than-temporary impairments in the value of equity securities classified as available-for-sale should be made

Accepted Answer

A)  on the individual security level. 
B)  in the aggregate for each type of security (i.e. ,common or preferred). 
C)  either on the individual security level or in the aggregate. 
D)  in none of these approaches.

Question 7

On February 1,2014,Andover Inc.had excess cash on hand.The controller suggested to management that the company buy $300,000 of U.S.Treasury bonds selling at 102 and paying 8 percent interest.Interest payments on these bonds are made semiannually on January 1 and July 1.

Accepted Answer

The answer of On February 1,2014,Andover Inc.had excess cash on...

Question 8

On January 1,2014,Comas Corporation acquired Partly,Inc.as a long-term investment for $250,000 (a 30 percent common stock interest in Partly).On that date,Partly had net assets with a book value and current market value of $800,000.During 2014,Partly reported net income of $85,000 and declared and paid cash dividends of $20,000.What is the maximum amount of income that Comas should report from this investment for 2014?

Accepted Answer

A)  $25,500 
B)  $21,000 
C)  $6,000 
D)  $33,000

Question 9

Aloe Company reports its income from its investment in Palm Company under the equity method.Aloe recognized income of $125,000 from its investment in Palm during the current year.Palm declared and paid dividends of which Aloe's share was $25,000 during the current year.The effect of these activities on the operating section of the statement of cash flows of Aloe Company prepared for the current year under the indirect method would be

Accepted Answer

A)  an increase of $125,000. 
B)  a deduction of $125,000. 
C)  a deduction of $100,000. 
D)  an increase of $100,000.

Question 10

When an investor uses the equity method to account for investments in common stock,cash dividends received by the investor from the investee should be recorded as

Accepted Answer

A)  an increase in the investment account. 
B)  a deduction from the investment account. 
C)  dividend revenue. 
D)  a deduction from the investor's share of the investee's profits.

Question 11

Fennel owned 40 percent of Actual's common stock,and as a result,accounted for the investment using the equity method.After the fifth year of owning the stock,the investment account had a credit balance.This could only happen if Fennel

Accepted Answer

A)  recorded net losses that were more than the net income. 
B)  distributed dividends in excess of the accumulated earnings. 
C)  had accumulated income that was less than the additional depreciation that Fennel recorded as a result of purchasing the stock when market value of the assets was in excess of book value. 
D)  experienced any,or a combination,of the conditions described in the three other responses.

Question 12

At January 1,2014,a company had a net valuation allowance account credit balance for investments in securities available-for-sale of $20,000.At December 31,2014,the total cost of the relevant portfolio was $300,000,and total market value was $275,000.The entry required on December 31,2014,would reflect a

Accepted Answer

A)  $5,000 decrease in net income. 
B)  $25,000 decrease in net income. 
C)  credit of $5,000 to the valuation allowance account. 
D)  debit of $25,000 to the unrealized loss account.

Question 13

Large,global enterprises typically have an equity interest in other entities throughout the world.Some of the interests represent wholly-owned (100%-owned)subsidiaries,while others represent lesser percentages of ownership.These large global conglomerates provide information on the percentage ownership of their various affiliated companies in the notes to the consolidated financial statements.
The following list of companies represents the ownership percentage of selected companies by a large global company:
  Required:
Explain how you would expect the global company holding the indicated interests to account for each of the companies listed above,based on the percentage ownership reported.

Accepted Answer

The answer of Large,global enterprises typically have an equity interest...

Question 14

Antoine Company began business in February 2013.During the year,Antoine purchased the three trading securities listed below.On its December 31,2013,balance sheet,Antoine appropriately reported a $4,000 debit balance in its Market Adjustment--Trading Securities account.There was no change in 2014 in the composition of Antoine's portfolio of marketable equity securities held as a temporary investment.Pertinent data are as follows:  What amount should Antoine credit to the Market Adjustment--Trading Securities account at December 31,2014?

Accepted Answer

A)  $0 
B)  $3,000 
C)  $7,000 
D)  $11,000

Question 15

Ignoring income taxes,choose the correct response below regarding total stockholders' equity resulting from classifying all investments for a firm either as trading securities or securities available-for-sale.

Accepted Answer

A)  Stockholders' equity is the same regardless of the classification 
B)  Stockholders' equity is greater if the investments are classified as available-for-sale. 
C)  .Stockholders' equity is greater if the investments are classified as trading securities. 
D)  If there have been unrealized gains,classification as trading securities results in higher stockholders' equity.

Question 16

In January 2014,Albert Corporation acquired 20 percent of the outstanding common stock of Peter Company for $1,120,000.This investment gave Albert the ability to exercise significant influence over Peter.The book value of the acquired shares was $840,000.The excess of cost over book value was attributed to an identifiable intangible asset that was undervalued on Peter's balance sheet and that had a remaining useful life of ten years.For the year ended December 31,2014,Peter reported net income of $252,000 and paid cash dividends of $56,000 on its common stock.What is the proper carrying value of Albert's investment in Peter at December 31,2014?

Accepted Answer

A)  $1,080,800 
B)  $1,092,000 
C)  $1,131,200 
D)  $1,181,600

Question 17

Which securities are purchased with the intent of selling them in the near future?

Accepted Answer

A)  Marketable equity securities 
B)  Available-for-sale securities 
C)  Trading securities 
D)  Held-to-maturity securities

Question 18

A firm purchased bonds to be classified as an investment in securities available-for-sale.The bonds were purchased at a premium.Assume the market price of the bond is volatile.Given these facts,which of the following is correct?

Accepted Answer

A)  Less cash interest is received each year than interest revenue is recognized 
B)  The ending valuation allowance account balance will depend on ending market value and original cost 
C)  The ending valuation allowance account balance will depend on ending market value and original cost adjusted for amortization of premium 
D)  The premium is ignored because the bonds are not classified as held-to-maturity

Question 19

Samba Company acquired 10,000 shares of the common stock of Pati Corp.in July 2014.The following January,Pati announced a $100,000 net income for 2014 and declared a cash dividend of $.50 per share on its 100,000 shares of outstanding common stock.The Samba Company dividend revenue from Pati Corp.in January 2014 would be

Accepted Answer

A)  $0. 
B)  $2,500. 
C)  $5,000. 
D)  $10,000.

Question 20

On July 1,2014,Hilltop Systems acquired 8,000 shares of Accurate Services' 40,000 outstanding common shares at a cost of $240,000.The book value of Accurate's net assets on that date was $880,000.The following data pertain to Accurate Services for 2014:
  Any excess of cost over book value is attributable to depreciable properties the market value of which exceeds the carrying value.The remaining life of the equipment is 10 years.

Accepted Answer

The answer of On July 1,2014,Hilltop Systems acquired 8,000 shares...

Exam 14: Investments in Debt and Equity Securities