Question 1

Preferred shares are often purchased as strategic investments.

Accepted Answer

A) True 
 B)False  False

Question 2

If the equity method is being used, cash dividends received

Accepted Answer

A)  are credited to the Dividend Revenue account. 
B)  do not require an entry because the investee's net income have already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Investment in Associates account. 
D)  are credited to the Income from Associates account. 
A)  are credited to the Dividend Revenue account. 
B)  do not require an entry because the investee's net income have already been recorded at the proper proportion on the investor's books. 
C)  are credited to the Investment in Associates account. 
D)  are credited to the Income from Associates account. C

Question 3

On June 1, 2018, Mango Corp. purchased Papaya Corp. common shares for $12,100 as a trading investment. Three months later, Mango sold these shares for $13,000. The entry to record the sale would include a

Accepted Answer

A)  debit to Cash of $12,100. 
B)  credit to Interest Revenue of $900. 
C)  credit to Held for Trading Investments of $13,000. 
D)  credit to Realized Gain on Held for Trading Investments of $900. 
A)  debit to Cash of $12,100. 
B)  credit to Interest Revenue of $900. 
C)  credit to Held for Trading Investments of $13,000. 
D)  credit to Realized Gain on Held for Trading Investments of $900. D

Question 4

Non-strategic investments can be classified as short or long-term investments.

Accepted Answer

A) True 
 B)False

Question 5

Frisbee Inc. owns a 30% interest in the shares of California Corp. During the year, California pays $10,000 in dividends to Frisbee and reports a net loss of $80,000. Frisbee's investment in California will affect Frisbee's net income by

Accepted Answer

A)  $10,000 increase. 
B)  $3,000 increase. 
C)  $24,000 decrease. 
D)  $21,000 decrease. 
A)  $10,000 increase. 
B)  $3,000 increase. 
C)  $24,000 decrease. 
D)  $21,000 decrease.

Question 6

Using the fair value through profit and loss model of accounting for an equity investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

Accepted Answer

A) True 
 B)False

Question 7

If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be

Accepted Answer

A)  credited to the Investment account. 
B)  credited to the Dividend Revenue account. 
C)  debited to the Investment account. 
D)  recorded only when 20% or more of the shares are owned. 
A)  credited to the Investment account. 
B)  credited to the Dividend Revenue account. 
C)  debited to the Investment account. 
D)  recorded only when 20% or more of the shares are owned.

Question 8

On September 15, 2018, Alonso Ltd. sells 150 common shares of Bandi Corp., which were being held as a trading investment. The shares were acquired six months ago at $75 a share. Alonso sells the shares for $60 a share. The entry to record the sale is

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 9

Under the equity method, the Investment in Associates account is increased when the

Accepted Answer

A)  associate reports net income. 
B)  associate pays a dividend. 
C)  associate reports a loss. 
D)  investment is sold at a gain. 
A)  associate reports net income. 
B)  associate pays a dividend. 
C)  associate reports a loss. 
D)  investment is sold at a gain.

Question 10

The degree of influence determines how a strategic investment is classified.

Accepted Answer

A) True 
 B)False

Question 11

Debt investments held to earn interest revenue are reported at amortized cost in the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 12

If there is a bond premium on a long-term bond investment, the carrying amount of the investment is reduced by the amount of the amortization.

Accepted Answer

A) True 
 B)False

Question 13

Use the following information for questions.
On January 1, 2017, Marianne Corp. purchased $50,000, of Robin Ltd.'s 4%, 10-year bonds for $48,000, since the market interest rate was approximately 4.5%. The bonds pay interest on January 1 and July 1. Marianne has a calendar year end, and classified the bonds as long-term investments. The fair value on December 31, 2017 was $48,500. Marianne sold the bonds on January 2, 2018 for $48,500.
-The entry for the receipt of interest on July 1, 2017 is

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 14

Non-strategic investments that are held for the purpose of earning capital gains are called Held for Trading Investments.

Accepted Answer

A) True 
 B)False

Question 15

Amortization of bond premiums for bond investments will

Accepted Answer

A)  increase Interest Revenue and increase the Investment account. 
B)  increase Interest Revenue and decrease the Investment account. 
C)  decrease Interest Revenue and decrease the Investment account. 
D)  decrease Interest Revenue and increase the Investment account. 
A)  increase Interest Revenue and increase the Investment account. 
B)  increase Interest Revenue and decrease the Investment account. 
C)  decrease Interest Revenue and decrease the Investment account. 
D)  decrease Interest Revenue and increase the Investment account.

Question 16

Other comprehensive income (loss)

Accepted Answer

A)  has no impact on shareholders' equity. 
B)  increases (decreases) accumulated other comprehensive income. 
C)  increases (decreases) retained earnings. 
D)  increases (decreases) net income. 
A)  has no impact on shareholders' equity. 
B)  increases (decreases) accumulated other comprehensive income. 
C)  increases (decreases) retained earnings. 
D)  increases (decreases) net income.

Question 17

Use the following information for questions.
On January 1, 2017, Marianne Corp. purchased $50,000, of Robin Ltd.'s 4%, 10-year bonds for $48,000, since the market interest rate was approximately 4.5%. The bonds pay interest on January 1 and July 1. Marianne has a calendar year end, and classified the bonds as long-term investments. The fair value on December 31, 2017 was $48,500. Marianne sold the bonds on January 2, 2018 for $48,500.
-The entry for the receipt of interest on January 1, 2018 is

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 18

Which one of the following statements is false?

Accepted Answer

A)  Under the equity method, revenue is recognized when net income is earned by the associate. 
B)  When the equity method is used to account for an investment in shares, dividends received are accounted for as a reduction in the investment account. 
C)  Under the equity method, the investment account is adjusted annually for a portion of associate's net income and for dividends received. 
D)  Under the equity method, revenue is recognized when net income is earned by the investor which may not be when it is earned by the investee. 
A)  Under the equity method, revenue is recognized when net income is earned by the associate. 
B)  When the equity method is used to account for an investment in shares, dividends received are accounted for as a reduction in the investment account. 
C)  Under the equity method, the investment account is adjusted annually for a portion of associate's net income and for dividends received. 
D)  Under the equity method, revenue is recognized when net income is earned by the investor which may not be when it is earned by the investee.

Question 19

Under the equity method of accounting for investments in common shares, when a dividend is received from the investee,

Accepted Answer

A)  the Dividend Revenue account is credited. 
B)  the Investment account is increased. 
C)  the Investment account is decreased. 
D)  no entry is necessary. 
A)  the Dividend Revenue account is credited. 
B)  the Investment account is increased. 
C)  the Investment account is decreased. 
D)  no entry is necessary.

Question 20

Which of the following is false?

Accepted Answer

A)  The cost model is used only for equity investments. 
B)  The cost model reports realized gains and losses on the income statement. 
C)  The cost model is used to account for equity investments where there is significant influence. 
D)  The cost model is very similar to the amortized cost model. 
A)  The cost model is used only for equity investments. 
B)  The cost model reports realized gains and losses on the income statement. 
C)  The cost model is used to account for equity investments where there is significant influence. 
D)  The cost model is very similar to the amortized cost model.

Preferred shares are often purchased as strategic investments.

If the equity method is being used, cash dividends received

On June 1, 2018, Mango Corp. purchased Papaya Corp. common shares for $12,100 as a trading investment. Three months later, Mango sold these shares for $13,000. The entry to record the sale would include a

Non-strategic investments can be classified as short or long-term investments.

Frisbee Inc. owns a 30% interest in the shares of California Corp. During the year, California pays $10,000 in dividends to Frisbee and reports a net loss of $80,000. Frisbee's investment in California will affect Frisbee's net income by

Using the fair value through profit and loss model of accounting for an equity investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be

On September 15, 2018, Alonso Ltd. sells 150 common shares of Bandi Corp., which were being held as a trading investment. The shares were acquired six months ago at $75 a share. Alonso sells the shares for $60 a share. The entry to record the sale is

Under the equity method, the Investment in Associates account is increased when the

The degree of influence determines how a strategic investment is classified.

Debt investments held to earn interest revenue are reported at amortized cost in the statement of financial position.

If there is a bond premium on a long-term bond investment, the carrying amount of the investment is reduced by the amount of the amortization.

Non-strategic investments that are held for the purpose of earning capital gains are called Held for Trading Investments.

Amortization of bond premiums for bond investments will

Other comprehensive income (loss)

Which one of the following statements is false?

Under the equity method of accounting for investments in common shares, when a dividend is received from the investee,

Which of the following is false?

The Purpose and Use of Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations

Reporting and Analyzing Inventory

Internal Control and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Shareholders Equity

Statement of Cash Flows

Performance Measurement

Filters

Exam 12: Reporting and Analyzing Investments

Preferred shares are often purchased as strategic investments.

If the equity method is being used, cash dividends received

On June 1, 2018, Mango Corp. purchased Papaya Corp. common shares for $12,100 as a trading investment. Three months later, Mango sold these shares for $13,000. The entry to record the sale would include a

Non-strategic investments can be classified as short or long-term investments.

Frisbee Inc. owns a 30% interest in the shares of California Corp. During the year, California pays $10,000 in dividends to Frisbee and reports a net loss of $80,000. Frisbee's investment in California will affect Frisbee's net income by

Using the fair value through profit and loss model of accounting for an equity investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be

On September 15, 2018, Alonso Ltd. sells 150 common shares of Bandi Corp., which were being held as a trading investment. The shares were acquired six months ago at $75 a share. Alonso sells the shares for $60 a share. The entry to record the sale is

Under the equity method, the Investment in Associates account is increased when the

The degree of influence determines how a strategic investment is classified.

Debt investments held to earn interest revenue are reported at amortized cost in the statement of financial position.

If there is a bond premium on a long-term bond investment, the carrying amount of the investment is reduced by the amount of the amortization.

Non-strategic investments that are held for the purpose of earning capital gains are called Held for Trading Investments.

Amortization of bond premiums for bond investments will

Other comprehensive income (loss)

Which one of the following statements is false?

Under the equity method of accounting for investments in common shares, when a dividend is received from the investee,

Which of the following is false?

The Purpose and Use of Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations

Reporting and Analyzing Inventory

Internal Control and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Shareholders Equity

Statement of Cash Flows

Performance Measurement

Filters