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Define the return on total assets and explain how it is used to measure a company's financial performance.

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The return on total assets is calculated...

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The cost method of accounting is used for long-term investments in equity securities with significant influence.

A) True
B) False

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Trading securities are securities that are purchased by trading securities with other companies rather than by paying cash.

A) True
B) False

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Long-term investments are reported in the:


A) Equity section of the balance sheet.
B) Plant assets section of the balance sheet.
C) Non-current section of the balance sheet called long-term investments.
D) Current asset section of the balance sheet.
E) Intangible asset section of the balance sheet.

F) B) and E)
G) A) and E)

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All of the following statements regarding equity securities are true except:


A) Equity securities should be recorded at cost when acquired.
B) Equity securities are valued at fair value if classified as significant influence securities.
C) Equity securities are valued at fair value if classified as trading securities.
D) Equity securities classified as available-for-sale record the dividend revenue when received.
E) Equity securities are valued at fair value if classified as available-for-sale securities.

F) A) and C)
G) B) and D)

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Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:


A) The securities will have a maturity value of $300,000.
B) The debt securities should be recorded at cost, $300,000.
C) Interest Revenue should be credited when an interest payment is received.
D) The semiannual interest payment amount is $24,000.
E) The semiannual interest payment amount is $12,000.

F) D) and E)
G) A) and E)

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Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

A) True
B) False

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Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:  Available-for-Sale Securities  Cost  Fair value December 31,20X1$250,000$241,000 December 31,20X2$340,000$350,000 December 31,20X3$410,000$415,000\begin{array}{|l|l|l|}\hline \text { Available-for-Sale Securities }&\text { Cost }&\text { Fair value}\\\hline \text { December } 31,20 \mathrm{X} 1 & \$ 250,000 & \$ 241,000 \\\hline \text { December } 31,20 \mathrm{X} 2 & \$ 340,000 & \$ 350,000 \\\hline \text { December } 31,20 \mathrm{X} 3 & \$ 410,000 & \$ 415,000\\\hline\end{array}


A) Debit Fair Value Adjustment - Available-for-Sale (LT) $9,000; Credit Unrealized Loss - Equity $9,000.
B) Debit Unrealized Gain- Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000.
C) Debit Fair Value Adjustment - Available-for-Sale (LT) $9,000; Credit Unrealized Gain - Equity $9,000.
D) Debit Unrealized Loss - Equity $9,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $9,000.
E) Debit Unrealized Loss - Income $9,000; Credit Fair Value Adjustment - Available-for-Sale (ST) $9,000.

F) B) and E)
G) C) and D)

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All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:


A) Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account) .
B) Under the consolidation method, investee and investor revenues and expenses are combined.
C) Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income.
D) U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.
E) Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.

F) C) and D)
G) B) and E)

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A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:


A) $1,000.
B) $2,500.
C) $500.
D) $1,250.
E) $1,500.

F) A) and B)
G) C) and E)

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A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

A) True
B) False

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Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.

A) True
B) False

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A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover equals 4.7%.

A) True
B) False

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An investor presumed to have significant influence owns at least 20% but not more than 50% of another company's voting stock.

A) True
B) False

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If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

A) True
B) False

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Trading securities are:


A) Intended to be held to maturity.
B) Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
C) Recorded at cost and remain at cost over the life of the investment.
D) Always classified as Long-Term Investments.
E) Reported at fair value on the balance sheet.

F) None of the above
G) D) and E)

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On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On October 31, which is Potter's year-end, the stock had a fair value of $20,000. Potter should record a:


A) Debit to Unrealized Loss-Equity for $4,000.
B) Credit to Investment Revenue for $4,000.
C) Credit to Market Adjustment-Available-for-Sale for $4,000.
D) Debit to Unrealized Gain-Equity for $4,000.
E) Credit to Unrealized Gain-Equity for $4,000.

F) A) and C)
G) A) and E)

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Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?


A) debit Cash, $2,000; credit Interest Revenue, $2,000.
B) debit Cash, $4,000; credit Long-Term Investments-HTM, $4,000.
C) debit Unrealized Gain-Equity, $2,000; credit Cash, $2,000.
D) debit Cash, $4,000; credit Unrealized Gain-Equity, $4,000.
E) debt Cash, $2,000; credit Long-Term Investments-HTM, $2000.

F) B) and D)
G) B) and E)

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Available-for-sale debt securities are:


A) Intended to be held to maturity.
B) Always classified as Long-Term Investments.
C) Reported at fair value on the balance sheet.
D) Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
E) Recorded at cost and remain at cost over the life of the investment.

F) A) and B)
G) C) and E)

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On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the sale of the 3,500 shares of stock on November 17 is:


A) Debit Cash $102,550; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,495.
B) Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; credit Gain on Sale of Long-Term Investments $2,645.
C) Debit Cash $102,300; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,245.
D) Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; debit Gain on Sale of Long-Term Investments $2,645.
E) Debit Cash $102,300; credit Long-Term Investments-AFS $99,855; credit Gain on Sale of Long-Term Investments $2,445.

F) None of the above
G) C) and D)

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