Question 1

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Accepted Answer

A)  has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B)  should apply the cost method in accounting for the investment. 
C)  will prepare consolidated financial statements. 
D)  has significant influence on the investee and that the equity method should be used to account for the investment. 
A)  has insignificant influence on the investee and that the cost method should be used to account for the investment. 
B)  should apply the cost method in accounting for the investment. 
C)  will prepare consolidated financial statements. 
D)  has significant influence on the investee and that the equity method should be used to account for the investment.

Question 2

Potter Company has purchased a patent that requires annual payments of $31,250 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the patent?

Accepted Answer

A)  $187,500 
B)  $128,482 
C)  $172,679 
D)  $120,469 
A)  $187,500 
B)  $128,482 
C)  $172,679 
D)  $120,469

Question 3

Dividends received on investments are accounted for in the same way under the cost and the equity method.

Accepted Answer

A) True 
 B)False

Question 4

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Accepted Answer

A) True 
 B)False

Question 5

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

Accepted Answer

The answer of Crosby Corporation sells 300 shares of common...

Question 6

Assume that Oslo Corp. acquires 30% of Celdon Corp. for $300,000 on January 1, 2014. The journal entry on Oslo's books assuming Celdon's net income for 2014 was $500,000 would include a debit to

Accepted Answer

A)  No entry is necessary. 
B)  Cash for $500,000. 
C)  Cash for $150,000. 
D)  Stock Investments for $150,000. 
A)  No entry is necessary. 
B)  Cash for $500,000. 
C)  Cash for $150,000. 
D)  Stock Investments for $150,000.

Question 7

If $10,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

Accepted Answer

A)  $8,220 
B)  $12,000 
C)  $12,155 
D)  $12,167 
A)  $8,220 
B)  $12,000 
C)  $12,155 
D)  $12,167

Question 8

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on January 1, 2015 is

Accepted Answer

The answer of On January 1, 2014, the LaRoche Company...

Question 9

Parks Blair invested $5,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Parks decided to withdraw the accumulated amount of money. Parks has found the following values in various tables related to the time value of money. $\begin{array}{lr}
\text { Present value of } 1 \text { for } 15 \text { periods at } 8 \% & 0.31524 \
\text { Future value of } 1 \text { for } 15 \text { periods at } 8 \% & 3.17217 \
\text { Present value of an annuity of } 1 \text { for } 15 \text { periods at } 8 \% & 8.55948 \
\text { Future value of an annuity of } 1 \text { for } 15 \text { periods at } 8 \% & 27.15211
\end{array}$ To the closest dollar, which amount would he withdraw, assuming that the investment earns interest compounded annually?

Accepted Answer

A)  $42,797 
B)  $75,000 
C)  $1,576 
D)  $15,861 
A)  $42,797 
B)  $75,000 
C)  $1,576 
D)  $15,861

Question 10

The equity method should generally be used to account for an investment in stock when the level of ownership is

Accepted Answer

A)  less than 10%. 
B)  between 10% and 20%. 
C)  between 20% and 50%. 
D)  10% or more. 
A)  less than 10%. 
B)  between 10% and 20%. 
C)  between 20% and 50%. 
D)  10% or more.

Question 11

When investing excess cash for short periods of time, corporations invest in debt securities and stock securities.

Accepted Answer

A) True 
 B)False

Question 12

Cupcake Company had the following transactions pertaining to its temporary stock investments.
Jan. 1  $\quad $Purchased 600 shares of La Crema Company stock for $7,050 cash .
June 1  $\quad $Received cash dividends of $0.40 per share on the La Crema Company stock.
Sept. 15  $\quad $Sold 300 shares of the La Crema Company stock for $3,400 cash.
Instructions
Journalize the transactions.

Accepted Answer

The answer of Cupcake Company had the following transactions pertaining...

Question 13

Unless there is evidence to the contrary, an investor owning 25% of the stock of an investee is assumed to have significant influence.

Accepted Answer

A) True 
 B)False

Question 14

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

Accepted Answer

The answer of On August 1, Basil Company buys 2,000...

Question 15

If the equity method is being used, cash dividends received

Accepted Answer

A)  are credited to the Dividend Revenue account. 
B)  require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Stock Investments account. 
D)  are credited to the Revenue from Investment in Stock account. 
A)  are credited to the Dividend Revenue account. 
B)  require no entry because investee net income has already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Stock Investments account. 
D)  are credited to the Revenue from Investment in Stock account.

Question 16

On January 1, Ollinger Company purchased a 25% equity investment in Fava Company for $300,000. At December 31 Fava declared and paid a $20,000 dividend and reported net income of $120,000.
Instructions
(a) Journalize the transactions
(b) Determine the amount to be reported as an investment in Fava stock at December 31.

Accepted Answer

The answer of On January 1, Ollinger Company purchased a...

Question 17

At December 31, 2014, Grey beard Inc. has these data on its security investments

Accepted Answer

The answer of At December 31, 2014, Grey beard Inc....

Question 18

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, U.K. Enterprise purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. The bond is sold on September 1 for $1,100 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?

Accepted Answer

The answer of On January 1, U.K. Enterprise purchased as...

Question 20

Corporations invest in other companies for all of the following reasons except to

Accepted Answer

A)  house excess cash until needed. 
B)  generate earnings. 
C)  meet strategic goals. 
D)  increase trading of the other companies' stock. 
A)  house excess cash until needed. 
B)  generate earnings. 
C)  meet strategic goals. 
D)  increase trading of the other companies' stock.

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Potter Company has purchased a patent that requires annual payments of $31,250 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the patent?

Dividends received on investments are accounted for in the same way under the cost and the equity method.

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

Assume that Oslo Corp. acquires 30% of Celdon Corp. for $300,000 on January 1, 2014. The journal entry on Oslo's books assuming Celdon's net income for 2014 was $500,000 would include a debit to

If $10,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on January 1, 2015 is

The equity method should generally be used to account for an investment in stock when the level of ownership is

When investing excess cash for short periods of time, corporations invest in debt securities and stock securities.

Unless there is evidence to the contrary, an investor owning 25% of the stock of an investee is assumed to have significant influence.

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

If the equity method is being used, cash dividends received

At December 31, 2014, Grey beard Inc. has these data on its security investments

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Corporations invest in other companies for all of the following reasons except to

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

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Exam 14: Understanding Investments and Acquisitions in Accounting

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Potter Company has purchased a patent that requires annual payments of $31,250 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the patent?

Dividends received on investments are accounted for in the same way under the cost and the equity method.

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

Assume that Oslo Corp. acquires 30% of Celdon Corp. for $300,000 on January 1, 2014. The journal entry on Oslo's books assuming Celdon's net income for 2014 was $500,000 would include a debit to

If $10,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on January 1, 2015 is

The equity method should generally be used to account for an investment in stock when the level of ownership is

When investing excess cash for short periods of time, corporations invest in debt securities and stock securities.

Unless there is evidence to the contrary, an investor owning 25% of the stock of an investee is assumed to have significant influence.

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

If the equity method is being used, cash dividends received

At December 31, 2014, Grey beard Inc. has these data on its security investments

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Corporations invest in other companies for all of the following reasons except to

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

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