Question 1

When the investor has insignificant influence, the receipt of cash dividends is recorded as dividend revenue.

Accepted Answer

A) True 
 B)False  True

Question 2

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity:   GIC purchased the bonds for:

Accepted Answer

A)  $200,000. 
B)  $194,758. 
C)  $242,000. 
D)  Cannot be determined from the given information. 
A)  $200,000. 
B)  $194,758. 
C)  $242,000. 
D)  Cannot be determined from the given information. B

Question 3

The primary difference in accounting for available-for-sale securities and accounting for trading securities is:

Accepted Answer

A)  Measuring the fair value of the long-term and short-term stock portfolios. 
B)  Computing the cost at acquisition. 
C)  Determining where the unrealized holding gain or loss on investments is reported in the financial statements; in current net income or in comprehensive income. 
D)  Accounting for dividends received. 
A)  Measuring the fair value of the long-term and short-term stock portfolios. 
B)  Computing the cost at acquisition. 
C)  Determining where the unrealized holding gain or loss on investments is reported in the financial statements; in current net income or in comprehensive income. 
D)  Accounting for dividends received. C

Question 4

Sandy Sensations purchases twenty, $1,000, 7%, 10-year bonds issued by Pizza Pier for $18,641 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 8%. Interest is received semiannually on June 30 and December 31.
1. Record the investment in bonds.
2. Record receipt of the first interest payment on June 30, 2012.

Accepted Answer

The answer of Sandy Sensations purchases twenty, $1,000, 7%, 10-year...

Question 5

Because the carrying value of bonds purchased at a discount increases over time, interest revenue will also increase each semi-annual interest period.

Accepted Answer

A) True 
 B)False

Question 6

Bond investments are long-term assets that earn interest revenue, while bonds payable are long-term liabilities that incur interest expense.

Accepted Answer

A) True 
 B)False

Question 7

Interest revenue is calculated as the carrying value of the investment in bonds times the stated interest rate.

Accepted Answer

A) True 
 B)False

Question 8

Consolidated financial statements are prepared when one company has:

Accepted Answer

A)  Accounted for the investment using the equity method. 
B)  Accounted for the investment as available-for-sale securities. 
C)  Control over another company. 
D)  None of these is correct. 
A)  Accounted for the investment using the equity method. 
B)  Accounted for the investment as available-for-sale securities. 
C)  Control over another company. 
D)  None of these is correct.

Question 9

Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

Accepted Answer

A)  The investment in available-for-sale securities would be reported in the balance sheet at its $100,000 cost. 
B)  The investment in available-for sale securities would be reported in the balance sheet at its $105,000 market value. 
C)  An unrealized holding gain would be reported in other comprehensive income. 
D)  Both b and c are correct. 
A)  The investment in available-for-sale securities would be reported in the balance sheet at its $100,000 cost. 
B)  The investment in available-for sale securities would be reported in the balance sheet at its $105,000 market value. 
C)  An unrealized holding gain would be reported in other comprehensive income. 
D)  Both b and c are correct.

Question 10

Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?

Accepted Answer

A)  Debt securities. 
B)  Equity securities. 
C)  Common stock. 
D)  All of these are correct. 
A)  Debt securities. 
B)  Equity securities. 
C)  Common stock. 
D)  All of these are correct.

Question 11

Under what circumstances do we use the equity method to account for an investment in stock? Explain how we record dividends received from an investment in a company accounted for using the equity method.

Accepted Answer

The equity method is used when an invest

Question 12

Seasonal refers to the revenue activities of a company varying based on the time (or season) of the year.

Accepted Answer

A) True 
 B)False

Question 13

One of the primary reasons for investing in debt securities includes:

Accepted Answer

A)  Receiving dividend payments. 
B)  Acquiring significant influence. 
C)  Earning interest revenue. 
D)  Deducting interest payments for tax purposes. 
A)  Receiving dividend payments. 
B)  Acquiring significant influence. 
C)  Earning interest revenue. 
D)  Deducting interest payments for tax purposes.

Question 14

When significant influence exists, the investment should be accounted for by the equity method.

Accepted Answer

A) True 
 B)False

Question 15

The equity method of accounting for investments in voting common stock is appropriate when:

Accepted Answer

A)  The investor can significantly influence the investee. 
B)  The investor has voting control over the investee. 
C)  The investor intends to hold the common stock indefinitely. 
D)  The investor is assured of a continued supply of a valuable raw material. 
A)  The investor can significantly influence the investee. 
B)  The investor has voting control over the investee. 
C)  The investor intends to hold the common stock indefinitely. 
D)  The investor is assured of a continued supply of a valuable raw material.

Question 16

Investments in debt securities are classified for reporting purposes in one of three categories. List these three categories and explain which investments are included in each category. Also briefly describe how the reporting differs for each category.

Accepted Answer

Investments in debt securities are class

Question 17

Investments are reported at fair value when a company has an insignificant influence over another company in which it invests.

Accepted Answer

A) True 
 B)False

Question 18

Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly classified as a trading security. By the end of the year, the stock price has increased to $32 per share. How would the change in stock price affect Sports Spectacular's net income?

Accepted Answer

A)  Increase net income by $32,000. 
B)  Increase net income by $30,000. 
C)  Increase net income by $2,000. 
D)  No effect. 
A)  Increase net income by $32,000. 
B)  Increase net income by $30,000. 
C)  Increase net income by $2,000. 
D)  No effect.

Question 19

Because the carrying value of bonds purchased at a premium increases over time, interest revenue will also increase each semi-annual interest period.

Accepted Answer

A) True 
 B)False

Question 20

California Designs is diversifying its investment portfolio by making a small investment (less than 5%) in the common stock of Oregon Outfitters. California Designs engages in the following transactions relating to its investment:   1. Record each of these transactions, including the December 31 adjustment to fair value.
2. Calculate the balance of the Investments account on December 31.

Accepted Answer

@#IMG-DLM& The balance in the Investments account

When the investor has insignificant influence, the receipt of cash dividends is recorded as dividend revenue.

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: GIC purchased the bonds for:

The primary difference in accounting for available-for-sale securities and accounting for trading securities is:

Because the carrying value of bonds purchased at a discount increases over time, interest revenue will also increase each semi-annual interest period.

Bond investments are long-term assets that earn interest revenue, while bonds payable are long-term liabilities that incur interest expense.

Interest revenue is calculated as the carrying value of the investment in bonds times the stated interest rate.

Consolidated financial statements are prepared when one company has:

Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?

Under what circumstances do we use the equity method to account for an investment in stock? Explain how we record dividends received from an investment in a company accounted for using the equity method.

Seasonal refers to the revenue activities of a company varying based on the time (or season) of the year.

One of the primary reasons for investing in debt securities includes:

When significant influence exists, the investment should be accounted for by the equity method.

The equity method of accounting for investments in voting common stock is appropriate when:

Investments in debt securities are classified for reporting purposes in one of three categories. List these three categories and explain which investments are included in each category. Also briefly describe how the reporting differs for each category.

Investments are reported at fair value when a company has an insignificant influence over another company in which it invests.

Because the carrying value of bonds purchased at a premium increases over time, interest revenue will also increase each semi-annual interest period.

Accounting Information and Decision Making

The Accounting Information System

The Financial Reporting Process

Cash and Internal Controls

Receivables and Sales

Inventory and Cost of Goods Sold

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Stockholders Equity

Statement of Cash Flows

Financial Statement Analysis

Time Value of Money

International Financial Reporting Standards

Filters

Exam 14: Investments

When the investor has insignificant influence, the receipt of cash dividends is recorded as dividend revenue.

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: GIC purchased the bonds for:

The primary difference in accounting for available-for-sale securities and accounting for trading securities is:

Because the carrying value of bonds purchased at a discount increases over time, interest revenue will also increase each semi-annual interest period.

Bond investments are long-term assets that earn interest revenue, while bonds payable are long-term liabilities that incur interest expense.

Interest revenue is calculated as the carrying value of the investment in bonds times the stated interest rate.

Consolidated financial statements are prepared when one company has:

Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?

Under what circumstances do we use the equity method to account for an investment in stock? Explain how we record dividends received from an investment in a company accounted for using the equity method.

Seasonal refers to the revenue activities of a company varying based on the time (or season) of the year.

One of the primary reasons for investing in debt securities includes:

When significant influence exists, the investment should be accounted for by the equity method.

The equity method of accounting for investments in voting common stock is appropriate when:

Investments in debt securities are classified for reporting purposes in one of three categories. List these three categories and explain which investments are included in each category. Also briefly describe how the reporting differs for each category.

Investments are reported at fair value when a company has an insignificant influence over another company in which it invests.

Because the carrying value of bonds purchased at a premium increases over time, interest revenue will also increase each semi-annual interest period.

Accounting Information and Decision Making

The Accounting Information System

The Financial Reporting Process

Cash and Internal Controls

Receivables and Sales

Inventory and Cost of Goods Sold

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Stockholders Equity

Statement of Cash Flows

Financial Statement Analysis

Time Value of Money

International Financial Reporting Standards

Filters