Question 1

Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:

Accepted Answer

A)   equity investments
B)   available-for-sale securities
C)   cash and cash equivalents
D)   held to maturity securitiesE) A) and B)
F) A) and C)

Question 2

The account Valuation Allowance for Trading Securities is found on the:

Accepted Answer

A)   Income statement as Other Revenue (Expenses) 
B)   Balance sheet as an adjustment to the asset account
C)   Balance sheet as an adjustment to Stockholders' Equity
D)   Statement of Retained EarningsE) All of the above
F) A) and B)

Question 3

Investments in bonds that management intends to hold to maturity are called trading securities.

Accepted Answer

A) True 
 B)False

Question 4

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Accepted Answer

A) True 
 B)False

Question 5

Long-term investments are held for all of the listed reasons below except

Accepted Answer

A)   to earn the interest or dividend income
B)   for its long-term gain potential
C)   to influence over another business entity
D)   to meet current cash needsE) B) and C)
F) All of the above

Question 6

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Accepted Answer

A) True 
 B)False

Question 7

The company whose more than 50% stock is owned by the another company is called the

Accepted Answer

A)   controlling company.
B)   investee company.
C)   subsidiary company.
D)   sibling company.E) All of the above
F) B) and C)

Question 8

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include:

Accepted Answer

A)   a debit to Cash for $111,840
B)   a credit to Investments for $112,000
C)   a credit to Loss on Sale for $23,680
D)   a debit to Cash for $112,000E) A) and B)
F) C) and D)

Question 9

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

Accepted Answer

A)   debit Investment in Worton Corporation; credit Cash
B)   debit Cash; credit Dividend Revenue
C)   debit Investment in Worton Corporation; credit Income of Worton Corporation
D)   debit Cash; credit Investment in Worton CorporationE) C) and D)
F) None of the above

Question 10

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Accepted Answer

A)   Credit to cash for $9,000
B)   Debit to the investment account for $9,000
C)   Credit to the investment account for $9,000
D)   Credit to a loss account for $9,000E) None of the above
F) All of the above

Question 11

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is:

Accepted Answer

A)   2.5%
B)   400%
C)   16%
D)   40%E) B) and D)
F) A) and B)

Question 12

In general, consolidated financial statements should be prepared

Accepted Answer

A)   when a corporation owns more than 20% and less than 40% of the common stock of another company
B)   when a corporation owns more than 50% of the common stock of another company
C)   only when a corporation owns 100% of the common stock of another company
D)   whenever the market value of the stock investment is significantly lower than its costE) A) and B)
F) A) and C)

Question 13

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

Accepted Answer

A) True 
 B)False

Question 14

Which one of the following items below would not affect the investor's income for the period?

Accepted Answer

A)   interest received on a temporary investment in bonds
B)   dividends received on a long-term investment in stock where the investor owns 10% of the investee's stock
C)   dividends received on a long-term investment in stock where the investor owns 30% of the investee's stock
D)   interest received on a long-term investment in bondsE) None of the above
F) B) and C)

Question 15

If the proceeds from the sale of bond investments exceeds the carrying amount of the bonds, a gain is realized.

Accepted Answer

A) True 
 B)False

Question 16

On April 1, 2011, Albert Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Albert received its first semiannual interest. On February 1, 2012, Albert sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Albert will record on April 1, 2011 for the purchase of the bonds will include:

Accepted Answer

A)   a credit to Interest Payable for $2,000.
B)   a debit to Investments - Tetter Company for $52,000.
C)   a debit for Cash of $50,000.
D)   a debit to Investments - Tetter Company for $50,000.E) A) and B)
F) B) and D)

Question 17

The equity method of accounting for investments

Accepted Answer

A)   requires a year-end adjustment to revalue the stock to lower of cost or market
B)   requires the investment to be reported at its original cost
C)   requires the investment be increased by the reported net income of the investee
D)   requires the investment be increased by the dividends paid by the investeeE) A) and B)
F) A) and C)

Question 18

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Accepted Answer

A) True 
 B)False

Question 19

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Accepted Answer

The answer of On May 1, 2012, Chase Inc. purchases...

Question 20

Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

Accepted Answer

A) True 
 B)False

Exam 15: Investments and Fair Value Accounting

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

Correct Answer
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The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Correct Answer
verified

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Correct Answer
verified

Correct Answer
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The account Valuation Allowance for Trading Securities is found on the:

Correct Answer
verified

Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

Correct Answer
verified

Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:

Correct Answer
verified

Correct Answer
verified

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Correct Answer
verified

Long-term investments are held for all of the listed reasons below except

Correct Answer
verified

If the proceeds from the sale of bond investments exceeds the carrying amount of the bonds, a gain is realized.

Correct Answer
verified

Correct Answer
verified

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is:

Correct Answer
verified

In general, consolidated financial statements should be prepared

Correct Answer
verified

Investments in bonds that management intends to hold to maturity are called trading securities.

Correct Answer
verified

The equity method of accounting for investments

Correct Answer
verified

Which one of the following items below would not affect the investor's income for the period?

Correct Answer
verified

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Correct Answer
verified

The company whose more than 50% stock is owned by the another company is called the

Correct Answer
verified

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Correct Answer
verified

Exam 15: Investments and Fair Value Accounting

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

Correct AnswerverifiedShow Answer

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Correct AnswerverifiedShow Answer

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The account Valuation Allowance for Trading Securities is found on the:

Correct AnswerverifiedShow Answer

Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

Correct AnswerverifiedShow Answer

Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Correct AnswerverifiedShow Answer

Long-term investments are held for all of the listed reasons below except

Correct AnswerverifiedShow Answer

If the proceeds from the sale of bond investments exceeds the carrying amount of the bonds, a gain is realized.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is:

Correct AnswerverifiedShow Answer

In general, consolidated financial statements should be prepared

Correct AnswerverifiedShow Answer

Investments in bonds that management intends to hold to maturity are called trading securities.

Correct AnswerverifiedShow Answer

The equity method of accounting for investments

Correct AnswerverifiedShow Answer

Which one of the following items below would not affect the investor's income for the period?

Correct AnswerverifiedShow Answer

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Correct AnswerverifiedShow Answer

The company whose more than 50% stock is owned by the another company is called the

Correct AnswerverifiedShow Answer

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Correct AnswerverifiedShow Answer

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