Question 1

Unrealized gains and losses on trading securities are not included in the calculation of income from operations.

Accepted Answer

A) True 
 B)False  True

Question 2

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

Accepted Answer

A) True 
 B)False  False

Question 3

Following are data for the trading securities held by Lindy Company as of December 31:
​ $\begin{array}{|l|c|c|c|c|c|}
\hline\text { Name } & \begin{array}{c}
\text { Number of } \
\text { Shares }
\end{array} & \begin{array}{c}
\text { Cost } \
\text { per Share }
\end{array} & \begin{array}{c}
\text { Fair Value } \
\text { per Share }
\end{array} & \text { Total Cost } & \text { total Fair Value } \
\hline \text { Laurie, Inc. } & 1,200 & \$ 15.00 & \$ 15.40 \
\hline \text { Scott Corp. } & 800 & 8.00 & 8.25 \
\hline \text { Stephanie Company } & 700 & 14.40 & 13.50 \
\hline \text { Timmer Company } & 900 & 12.35 & 10.77 \
\hline \text { Total } & & & \
\hline
\end{array}$ ​
(a) Complete the table above to find the total cost and fair value for the company's trading securities portfolio.
(b) Calculate and record the required December 31 adjustment.
(c) Explain how the adjustment from step (b) is reported on Lindy's financial statements.

Accepted Answer

$\begin{array}{|l|c|c|c|c|c|}
\hline\text { Name } & \begin{array}{c}
\text { Number of } \
\text { Shares }
\end{array} & \begin{array}{c}
\text { Cost } \
\text { per Share }
\end{array} & \begin{array}{c}
\text { Fair Value } \
\text { per Share }
\end{array} & \text { Total Cost } & \text { total Fair Value } \
\hline \text { Laurie, Inc. } & 1,200 & \$ 15.00 & \$ 15.40 & \$ 18,000 & \$ 18,480 \
\hline \text { Scott Corp. } & 800 & 8.00 & 8.25 & 6,400 & 6,600 \
\hline \text { Stephanie Company } & 700 & 14.40 & 13.50 & 10,080 & 9,450 \
\hline \text { Timmer Company } & 900 & 12.35 & 10.77 & \underline{11,115} & {9,6 9 3} \
\hline \text { Total } & & & & \$ 445,595 & \$ 44,223 \
\hline
\end{array}$ ​ $\begin{array}{|l|l|l|}
\hline \text { (b) } & & \
\hline \text { Unrealized Loss on Trading Investments } & 1,372 & \
\hline \text { Valuation Allowance for Trading Investments } & & 1,372 \
\hline \$ 45,595-\$ 44,223=\$ 1,372 \text { unrealized loss } & & \
\hline
\end{array}$ ​
(c) The unrealized loss will be shown as an "Other Expense" on the income statement and the valuation allowance will be shown as a reduction of the value of the trading investment portfolio (at cost) in the assets section of the balance sheet.

Question 4

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Accepted Answer

A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary 
A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary

Question 5

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Accepted Answer

When companies temporarily have excess c

Question 6

Match between columns
                        Premises:  debt and equity securities purchased and sold to earn short-term profits from changes in the market price
 preferred and common stock that represent ownership in a company and do not have a fixed maturity date
 the method of reporting an investment that represents less than 20% of the outstanding stock of another company
 when using this, dividends are treated as a reduction of the investment
 notes and bonds that pay interest and have a fixed maturity
 debt investments that a company intends to keep until their maturity date
 securities not held for trading or to maturity or other strategic reasons
 the company investing in another company’s stock
 what occurs when a company purchases  50% or more of another company’s stock
 the company whose stock is purchased by another entity

Accepted Answer

The Answer of debt securities and equity securities and investor is...

Question 7

The account Unrealized Gain (Loss) on Available-for-Sale Investments should be included on the

Accepted Answer

A)  income statement as other revenue (expense) 
B)  balance sheet as an adjustment to the asset account 
C)  balance sheet as an adjustment to stockholders' equity 
D)  statement of stockholder's equity 
A)  income statement as other revenue (expense) 
B)  balance sheet as an adjustment to the asset account 
C)  balance sheet as an adjustment to stockholders' equity 
D)  statement of stockholder's equity

Question 8

Present entries to record the following selected transactions of Masterson Co. (a) Purchased 600 shares of the 100,000 shares outstanding $\$ 10$ par common shares of Dankin Corporation for $\$ 5,100$.
(b) Purchased 3,500 shares of the 10,000 shares no par common shares of Ramon Co. for $\$ 45,700$. The investment was accounted for by the equity method.
(c) Received a cash dividend of $\$ 1$ per share on the Dankin Corporation stock acquired in (a).
(d) Received a cash dividend of $\$ 2$ per share on the Ramon Co. stock acquired in (b).
(e) Sold 100 shares of the Dankin Corporation shares acquired in (a) for $\$ 2,100$.
(f) Dankin Corporation reported net income of $\$ 30,000$ and Ramon Company's reported net income was $\$ 50,000$.

Accepted Answer

(a) @#IMG-DLM&_TB2281_00 (b) @#IMG-DLM&_

Question 9

When shares of stock held as an investment are sold, the difference between the proceeds and the balance of the investment account is recorded as a(n)

Accepted Answer

A)  prior period adjustment 
B)  operating income and losses 
C)  paid-in capital addition 
D)  gain or loss 
A)  prior period adjustment 
B)  operating income and losses 
C)  paid-in capital addition 
D)  gain or loss

Question 10

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

Accepted Answer

A) True 
 B)False

Question 11

Trading securities are reported on the balance sheet at fair value.

Accepted Answer

A) True 
 B)False

Question 12

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Present entries to record the following selected transactions: (a) Purchased bonds at 93 for $\$ 465,000$.
(b) Sold half the bonds at 98 plus accrued interest of $\$ 4,000$. The broker deducted $\$ 200$ for brokerage fees and taxes, remitting the balance. The bonds were carried at $\$ 479,000$ at the time of the sale.

Accepted Answer

(a) @#IMG-DLM&_TB228

Question 13

Financial statements in which financial data for two or more companies are combined as a single entity are called

Accepted Answer

A)  conventional statements 
B)  consolidated statements 
C)  audited statements 
D)  constitutional statements 
A)  conventional statements 
B)  consolidated statements 
C)  audited statements 
D)  constitutional statements

Question 14

Investment in Bonds is reported on the balance sheet at lower of cost or market.

Accepted Answer

A) True 
 B)False

Question 15

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of the Lucas Company. 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.
​
Prepare the journal entries for the original purchase, dividend, and sale under the fair value method.

Accepted Answer

The answer of On February 12, Addison, Inc. purchased 6,000...

Question 16

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 investee 
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 investee

Question 17

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Accepted Answer

A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased 
A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased

Question 18

On May 1, Pierce Company purchased $60,000 of Stanton Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest.
​
-The journal entry Pierce will record on February 1 will include a

Accepted Answer

A)  credit to Interest Revenue for $1,500 
B)  credit to Gain on Sale of Investments for $1,500 
C)  credit to Cash for $52,500 
D)  credit to Interest Receivable for $600 
A)  credit to Interest Revenue for $1,500 
B)  credit to Gain on Sale of Investments for $1,500 
C)  credit to Cash for $52,500 
D)  credit to Interest Receivable for $600

Question 19

An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

Accepted Answer

A)  $3,500 gain 
B)  $350 gain 
C)  $350 loss 
D)  $500 gain 
A)  $3,500 gain 
B)  $350 gain 
C)  $350 loss 
D)  $500 gain

Question 20

In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Accepted Answer

A) True 
 B)False

Unrealized gains and losses on trading securities are not included in the calculation of income from operations.

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

The account Unrealized Gain (Loss) on Available-for-Sale Investments should be included on the

When shares of stock held as an investment are sold, the difference between the proceeds and the balance of the investment account is recorded as a(n)

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

Trading securities are reported on the balance sheet at fair value.

Financial statements in which financial data for two or more companies are combined as a single entity are called

Investment in Bonds is reported on the balance sheet at lower of cost or market.

The equity method of accounting for investments

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Accounting and Business

Double-Entry Accounting

Adjustments: Accruals and Deferrals

The Accounting Cycle

Accounting for Retail Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Liabilities: Current, Installment Notes, and Contingencies

Liabilities: Bonds Payable

Corporations: Organization, Stock Transactions, and Dividends

Statement of Cash Flows

Financial Statement Analysis

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Exam 15:Investments

Unrealized gains and losses on trading securities are not included in the calculation of income from operations.

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

The account Unrealized Gain (Loss) on Available-for-Sale Investments should be included on the

When shares of stock held as an investment are sold, the difference between the proceeds and the balance of the investment account is recorded as a(n)

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

Trading securities are reported on the balance sheet at fair value.

Financial statements in which financial data for two or more companies are combined as a single entity are called

Investment in Bonds is reported on the balance sheet at lower of cost or market.

The equity method of accounting for investments

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Accounting and Business

Double-Entry Accounting

Adjustments: Accruals and Deferrals

The Accounting Cycle

Accounting for Retail Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Liabilities: Current, Installment Notes, and Contingencies

Liabilities: Bonds Payable

Corporations: Organization, Stock Transactions, and Dividends

Statement of Cash Flows

Financial Statement Analysis

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