Question 1

The future value of an annuity factor for 2 periods is equal to:

Accepted Answer

A)  1 plus the interest rate. 
B)  2 plus the interest rate. 
C)  2 minus the interest rate. 
D)  2. 
A)  1 plus the interest rate. 
B)  2 plus the interest rate. 
C)  2 minus the interest rate. 
D)  2.

Question 2

Dodson Company owns 17,500 of the 50,000 shares of outstanding common stock of Ferguson Company. Dodson Company should account for this investment using the:

Accepted Answer

A)  market method. 
B)  equity method. 
C)  lower-of-cost-or-market method. 
D)  consolidation method. 
A)  market method. 
B)  equity method. 
C)  lower-of-cost-or-market method. 
D)  consolidation method.

Question 3

An investee should report available-for-sale securities that might be sold in the next 12 months as a short-term investment.

Accepted Answer

A) True 
 B)False

Question 4

The term time value of money refers to the fact that money earns interest over time.

Accepted Answer

A) True 
 B)False

Question 5

Compound interest is computed on the principal and any interest earned that has not been paid or received.

Accepted Answer

A) True 
 B)False

Question 6

Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Small Time Company 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 7

Which of the following is not necessary to know in computing the future value of an annuity?

Accepted Answer

A)  Amount of the initial payment 
B)  Interest rate 
C)  Length of time between investment and payment 
D)  Year the payments begin 
A)  Amount of the initial payment 
B)  Interest rate 
C)  Length of time between investment and payment 
D)  Year the payments begin

Question 8

On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a:

Accepted Answer

A)  debit to Interest Receivable for $1,500. 
B)  credit to Interest Revenue for $1,500. 
C)  credit to Interest Revenue for $3,000. 
D)  debit to Interest Receivable for $3,000. 
A)  debit to Interest Receivable for $1,500. 
B)  credit to Interest Revenue for $1,500. 
C)  credit to Interest Revenue for $3,000. 
D)  debit to Interest Receivable for $3,000.

Question 9

On the statement of cash flows, the cash received when selling the investment in another company is reported as a(n)

Accepted Answer

A)  investing outflow. 
B)  investing inflow. 
C)  financing outflow. 
D)  financing inflow. 
A)  investing outflow. 
B)  investing inflow. 
C)  financing outflow. 
D)  financing inflow.

Question 10

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

Accepted Answer

A)  a debit to the Allowance to Adjust Investment to Market. 
B)  a credit to the Allowance to Adjust Investment to Market. 
C)  a debit to the Unrealized Gain on Investment. 
D)  no adjustment is required. 
A)  a debit to the Allowance to Adjust Investment to Market. 
B)  a credit to the Allowance to Adjust Investment to Market. 
C)  a debit to the Unrealized Gain on Investment. 
D)  no adjustment is required.

Question 11

The method used to account for investments in which the investor has 35% of the investee's voting stock and can significantly influence the decisions of the investee is the:

Accepted Answer

A)  market value method. 
B)  consolidated method. 
C)  equity method. 
D)  historical cost method. 
A)  market value method. 
B)  consolidated method. 
C)  equity method. 
D)  historical cost method.

Question 12

Investments accounted for by the equity method are initially recorded at market value.

Accepted Answer

A) True 
 B)False

Question 13

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry for the receipt of interest on July 1, 2012 would include a:

Accepted Answer

A)  debit to Cash for $3,000. 
B)  debit to Cash for $6,000. 
C)  debit to Interest Receivable for $3,000. 
D)  debit to Interest Receivable for $6,000. 
A)  debit to Cash for $3,000. 
B)  debit to Cash for $6,000. 
C)  debit to Interest Receivable for $3,000. 
D)  debit to Interest Receivable for $6,000.

Question 14

Realized gains on the sale of available-for-sale securities cannot be used to compute net income.

Accepted Answer

A) True 
 B)False

Question 15

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The adjusting entry to accrue interest on December 31, 2012 would include a:

Accepted Answer

A)  debit to Cash $3,000. 
B)  debit to Cash $6,000. 
C)  debit to Interest Receivable $3,000. 
D)  debit to Interest Receivable $6,000. 
A)  debit to Cash $3,000. 
B)  debit to Cash $6,000. 
C)  debit to Interest Receivable $3,000. 
D)  debit to Interest Receivable $6,000.

Question 16

Under the equity method of accounting for stock investments, the Investment account is decreased for the receipt of a dividend because:

Accepted Answer

A)  it is assumed that income will also be received. 
B)  the dividend decreases the investee's owners' equity, and therefore the investor's investment decreases. 
C)  the dividend decreases the investee's owners' equity, and therefore the investor's investment increases. 
D)  no cash is received. 
A)  it is assumed that income will also be received. 
B)  the dividend decreases the investee's owners' equity, and therefore the investor's investment decreases. 
C)  the dividend decreases the investee's owners' equity, and therefore the investor's investment increases. 
D)  no cash is received.

Question 17

An investment in common stock acquired during the year at a cost of $40,000 has a year-end market value of $42,250. The year-end adjusting entry requires a:

Accepted Answer

A)  debit to Long-Term Investments for $2,250. 
B)  debit to Allowance to Adjust Investments to Market for $2,250. 
C)  credit to Allowance to Adjust Investments to Market for $2,250. 
D)  debit to Unrealized Gain on Investment for $2,250. 
A)  debit to Long-Term Investments for $2,250. 
B)  debit to Allowance to Adjust Investments to Market for $2,250. 
C)  credit to Allowance to Adjust Investments to Market for $2,250. 
D)  debit to Unrealized Gain on Investment for $2,250.

Question 18

Under the equity method, the Long-Term Investment account is debited when the:

Accepted Answer

A)  investee reports net income. 
B)  investee reports net loss. 
C)  investor receives a cash dividend. 
D)  investment is sold. 
A)  investee reports net income. 
B)  investee reports net loss. 
C)  investor receives a cash dividend. 
D)  investment is sold.

Question 19

Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 would include a:

Accepted Answer

A)  debit to Cash $1,050. 
B)  debit to Long-Term Investment in Bonds $42,000. 
C)  credit to Interest Receivable $1,050. 
D)  credit to Interest Receivable $42,000. 
A)  debit to Cash $1,050. 
B)  debit to Long-Term Investment in Bonds $42,000. 
C)  credit to Interest Receivable $1,050. 
D)  credit to Interest Receivable $42,000.

Question 20

The present value of $100,000 to be received in 5 years will be smaller if the discount rate is:

Accepted Answer

A)  increased. 
B)  decreased. 
C)  not changed. 
D)  equal to the stated rate of interest. 
A)  increased. 
B)  decreased. 
C)  not changed. 
D)  equal to the stated rate of interest.

The future value of an annuity factor for 2 periods is equal to:

Dodson Company owns 17,500 of the 50,000 shares of outstanding common stock of Ferguson Company. Dodson Company should account for this investment using the:

An investee should report available-for-sale securities that might be sold in the next 12 months as a short-term investment.

The term time value of money refers to the fact that money earns interest over time.

Compound interest is computed on the principal and any interest earned that has not been paid or received.

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

Which of the following is not necessary to know in computing the future value of an annuity?

On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a:

On the statement of cash flows, the cash received when selling the investment in another company is reported as a(n)

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

The method used to account for investments in which the investor has 35% of the investee's voting stock and can significantly influence the decisions of the investee is the:

Investments accounted for by the equity method are initially recorded at market value.

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry for the receipt of interest on July 1, 2012 would include a:

Realized gains on the sale of available-for-sale securities cannot be used to compute net income.

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The adjusting entry to accrue interest on December 31, 2012 would include a:

Under the equity method of accounting for stock investments, the Investment account is decreased for the receipt of a dividend because:

An investment in common stock acquired during the year at a cost of $40,000 has a year-end market value of $42,250. The year-end adjusting entry requires a:

Under the equity method, the Long-Term Investment account is debited when the:

Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 would include a:

The present value of $100,000 to be received in 5 years will be smaller if the discount rate is:

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 future value of an annuity factor for 2 periods is equal to:

Dodson Company owns 17,500 of the 50,000 shares of outstanding common stock of Ferguson Company. Dodson Company should account for this investment using the:

An investee should report available-for-sale securities that might be sold in the next 12 months as a short-term investment.

The term time value of money refers to the fact that money earns interest over time.

Compound interest is computed on the principal and any interest earned that has not been paid or received.

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

Which of the following is not necessary to know in computing the future value of an annuity?

On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a:

On the statement of cash flows, the cash received when selling the investment in another company is reported as a(n)

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

The method used to account for investments in which the investor has 35% of the investee's voting stock and can significantly influence the decisions of the investee is the:

Investments accounted for by the equity method are initially recorded at market value.

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry for the receipt of interest on July 1, 2012 would include a:

Realized gains on the sale of available-for-sale securities cannot be used to compute net income.

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The adjusting entry to accrue interest on December 31, 2012 would include a:

Under the equity method of accounting for stock investments, the Investment account is decreased for the receipt of a dividend because:

An investment in common stock acquired during the year at a cost of $40,000 has a year-end market value of $42,250. The year-end adjusting entry requires a:

Under the equity method, the Long-Term Investment account is debited when the:

Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 would include a:

The present value of $100,000 to be received in 5 years will be smaller if the discount rate is:

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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