Question 1

The equity method of accounting for a stock investment should generally be used when the investor owns a level of stock ownership that:

Accepted Answer

A)  gives the investor an insignificant influence over the investee. 
B)  usually indicates a plan to acquire a controlling interest in the investee company. 
C)  requires the investor to prepare consolidated financial statements. 
D)  gives the investor significant influence over the investee company. 
A)  gives the investor an insignificant influence over the investee. 
B)  usually indicates a plan to acquire a controlling interest in the investee company. 
C)  requires the investor to prepare consolidated financial statements. 
D)  gives the investor significant influence over the investee company.

Question 2

Big Time Company owns all of the stock of Peterson Corporation and 80% of the stock of Tysen Corporation. Big Time Company earned net income of $750,000; Peterson earned $250,000; and Tysen earned $175,000. Big Time Company's consolidated income statement would report net income of:

Accepted Answer

A)  $1,000,000. 
B)  $1,250,000. 
C)  $1,140,000. 
D)  $1,050,000. 
A)  $1,000,000. 
B)  $1,250,000. 
C)  $1,140,000. 
D)  $1,050,000.

Question 3

Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation is the:

Accepted Answer

A)  investee. 
B)  investor. 
C)  controlling company. 
D)  parent company. 
A)  investee. 
B)  investor. 
C)  controlling company. 
D)  parent company.

Question 4

Consolidated financial statements are prepared when a company owns ________ of the common stock of another company.

Accepted Answer

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

Question 5

Perdue Company had the following transactions pertaining to stock investments: - February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share.
- June 1, Received cash dividends of $6,000 on Hudson Company stock.
- October 1, Sold 3,000 shares of Hudson stock for $54,000.
The entry to record the sale of the stock would include a:

Accepted Answer

A)  debit to Long-Term Investment for $51,000. 
B)  credit to Long-Term Investment for $51,000. 
C)  debit to Gain on Sale of Investment $3,000. 
D)  debit to Loss on Sale of Investment $3,000. 
A)  debit to Long-Term Investment for $51,000. 
B)  credit to Long-Term Investment for $51,000. 
C)  debit to Gain on Sale of Investment $3,000. 
D)  debit to Loss on Sale of Investment $3,000.

Question 6

The consolidation method of accounting is appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Accepted Answer

A) True 
 B)False

Question 7

Elimination entries are required in order for the consolidated financial statements to not include both the parent company's investment in the subsidiary and the subsidiary company's equity.

Accepted Answer

A) True 
 B)False

Question 8

Kelsey Company owns 30% interest in the stock of David Corporation. During the year, David pays $25,000 in dividends, and reports $100,000 in net income. Kelsey Company's investment in David will increase by:

Accepted Answer

A)  $25,000. 
B)  $30,000. 
C)  $24,000. 
D)  $22,500. 
A)  $25,000. 
B)  $30,000. 
C)  $24,000. 
D)  $22,500.

Question 9

On a worksheet for a consolidated entity balance sheet, the elimination entry requires:

Accepted Answer

A)  a credit to stockholders' equity accounts of the subsidiary. 
B)  a credit to the Cash account of the subsidiary. 
C)  a credit to Investment in Subsidiary. 
D)  a debit to Investment in Subsidiary. 
A)  a credit to stockholders' equity accounts of the subsidiary. 
B)  a credit to the Cash account of the subsidiary. 
C)  a credit to Investment in Subsidiary. 
D)  a debit to Investment in Subsidiary.

Question 10

On the statement of cash flows, the cash paid to purchase available-for-sale investments is shown as a(n):

Accepted Answer

A)  increase in financing activities. 
B)  decrease in financing activities. 
C)  increase in investing activities. 
D)  decrease in investing activities. 
A)  increase in financing activities. 
B)  decrease in financing activities. 
C)  increase in investing activities. 
D)  decrease in investing activities.

Question 11

The following is the proper order for assets on a balance sheet:

Accepted Answer

A)  Cash, intangibles, inventories, and long-term investments. 
B)  Cash, accounts receivable, property, plant and equipment, and long-term investments. 
C)  Cash, long-term investments, property, plant and equipment, and intangibles. 
D)  Cash, long-term investments, prepaid expenses and property, plant and equipment. 
A)  Cash, intangibles, inventories, and long-term investments. 
B)  Cash, accounts receivable, property, plant and equipment, and long-term investments. 
C)  Cash, long-term investments, property, plant and equipment, and intangibles. 
D)  Cash, long-term investments, prepaid expenses and property, plant and equipment.

Question 12

U.S. GAAP and foreign accounting principles may not always be the same.

Accepted Answer

A) True 
 B)False

Question 13

Unrealized gains and losses from available-for-sale investments arise from:

Accepted Answer

A)  the purchase of an investment. 
B)  the sale of the investment. 
C)  changes in the market value of the investment. 
D)  management's decision to adjust the value of the investment. 
A)  the purchase of an investment. 
B)  the sale of the investment. 
C)  changes in the market value of the investment. 
D)  management's decision to adjust the value of the investment.

Question 14

The present value of a bond is a function of the payment amount and the discount rate.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following discount rates will produce the smallest present value?

Accepted Answer

A)  8%. 
B)  10%. 
C)  6%. 
D)  4%. 
A)  8%. 
B)  10%. 
C)  6%. 
D)  4%.

Question 16

Davis Company purchased 30% of the outstanding shares of Ocean Corporation on January 1 at a cost of $580,000. Ocean Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year. At the end of the year, Ocean shares had a current market value of $590,000. After all necessary adjusting entries are made for the year, the balance in Davis Company's Long-Term Investment account will be:

Accepted Answer

A)  $601,000. 
B)  $580,000. 
C)  $675,000. 
D)  $650,000. 
A)  $601,000. 
B)  $580,000. 
C)  $675,000. 
D)  $650,000.

Question 17

Receiving a cash dividend affects what part of the balance sheet?

Accepted Answer

A)  Increases assets and increases paid-in-capital 
B)  Increases assets and decreases stockholders' equity 
C)  Increases assets and increases retained earnings 
D)  Has no effect on assets or total equity 
A)  Increases assets and increases paid-in-capital 
B)  Increases assets and decreases stockholders' equity 
C)  Increases assets and increases retained earnings 
D)  Has no effect on assets or total equity

Question 18

Realized gains and losses from available-for-sale investments arise from:

Accepted Answer

A)  the purchase of an investment. 
B)  the sale of the investment. 
C)  changes in the market value of the investment. 
D)  management's decision to adjust the value of the investment. 
A)  the purchase of an investment. 
B)  the sale of the investment. 
C)  changes in the market value of the investment. 
D)  management's decision to adjust the value of the investment.

Question 19

The balancing figure that brings the dollar amount of the total liabilities and stockholders' equity of the foreign subsidiary into agreement with the dollar amount of its total assets is the:

Accepted Answer

A)  equity adjustment. 
B)  foreign-currency exchange rate. 
C)  foreign-currency translation adjustment. 
D)  foreign consolidation adjustment. 
A)  equity adjustment. 
B)  foreign-currency exchange rate. 
C)  foreign-currency translation adjustment. 
D)  foreign consolidation adjustment.

Question 20

The interest rate on a bond determines the amount of interest the debtor company is expected to pay.

Accepted Answer

A) True 
 B)False

The equity method of accounting for a stock investment should generally be used when the investor owns a level of stock ownership that:

Big Time Company owns all of the stock of Peterson Corporation and 80% of the stock of Tysen Corporation. Big Time Company earned net income of $750,000; Peterson earned $250,000; and Tysen earned $175,000. Big Time Company's consolidated income statement would report net income of:

Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation is the:

Consolidated financial statements are prepared when a company owns ________ of the common stock of another company.

The consolidation method of accounting is appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Elimination entries are required in order for the consolidated financial statements to not include both the parent company's investment in the subsidiary and the subsidiary company's equity.

Kelsey Company owns 30% interest in the stock of David Corporation. During the year, David pays $25,000 in dividends, and reports $100,000 in net income. Kelsey Company's investment in David will increase by:

On a worksheet for a consolidated entity balance sheet, the elimination entry requires:

On the statement of cash flows, the cash paid to purchase available-for-sale investments is shown as a(n):

The following is the proper order for assets on a balance sheet:

U.S. GAAP and foreign accounting principles may not always be the same.

Unrealized gains and losses from available-for-sale investments arise from:

The present value of a bond is a function of the payment amount and the discount rate.

Which of the following discount rates will produce the smallest present value?

Receiving a cash dividend affects what part of the balance sheet?

Realized gains and losses from available-for-sale investments arise from:

The balancing figure that brings the dollar amount of the total liabilities and stockholders' equity of the foreign subsidiary into agreement with the dollar amount of its total assets is the:

The interest rate on a bond determines the amount of interest the debtor company is expected to pay.

The Financial Statements

Transaction Analysis

Accrual Accounting Income

Internal Control Cash

Short-Term Investments Receivables

Inventory Cost of Goods Sold

Plant Assets, Natural Resources, Intangibles

Liabilities

Stockholders Equity

The Income Statement, the Statement of Comprehensive Income, the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

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Exam 8: Long-Term Investments the Time Value of Money

The equity method of accounting for a stock investment should generally be used when the investor owns a level of stock ownership that:

Big Time Company owns all of the stock of Peterson Corporation and 80% of the stock of Tysen Corporation. Big Time Company earned net income of $750,000; Peterson earned $250,000; and Tysen earned $175,000. Big Time Company's consolidated income statement would report net income of:

Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation is the:

Consolidated financial statements are prepared when a company owns ________ of the common stock of another company.

The consolidation method of accounting is appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Elimination entries are required in order for the consolidated financial statements to not include both the parent company's investment in the subsidiary and the subsidiary company's equity.

Kelsey Company owns 30% interest in the stock of David Corporation. During the year, David pays $25,000 in dividends, and reports $100,000 in net income. Kelsey Company's investment in David will increase by:

On a worksheet for a consolidated entity balance sheet, the elimination entry requires:

On the statement of cash flows, the cash paid to purchase available-for-sale investments is shown as a(n):

The following is the proper order for assets on a balance sheet:

U.S. GAAP and foreign accounting principles may not always be the same.

Unrealized gains and losses from available-for-sale investments arise from:

The present value of a bond is a function of the payment amount and the discount rate.

Which of the following discount rates will produce the smallest present value?

Receiving a cash dividend affects what part of the balance sheet?

Realized gains and losses from available-for-sale investments arise from:

The balancing figure that brings the dollar amount of the total liabilities and stockholders' equity of the foreign subsidiary into agreement with the dollar amount of its total assets is the:

The interest rate on a bond determines the amount of interest the debtor company is expected to pay.

The Financial Statements

Transaction Analysis

Accrual Accounting Income

Internal Control Cash

Short-Term Investments Receivables

Inventory Cost of Goods Sold

Plant Assets, Natural Resources, Intangibles

Liabilities

Stockholders Equity

The Income Statement, the Statement of Comprehensive Income, the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Filters