Question 1

The cash received from interest equals the face value of the investment in bonds times the stated interest rate.

Accepted Answer

A) True 
 B)False

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:   Recording the bond purchase would have what effect on the financial statements?

Accepted Answer

A)  Increase assets. 
B)  Increase liabilities. 
C)  Increase assets and liabilities. 
D)  No effect on total assets and total liabilities. 
A)  Increase assets. 
B)  Increase liabilities. 
C)  Increase assets and liabilities. 
D)  No effect on total assets and total liabilities.

Question 3

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

Accepted Answer

A)  Two years. 
B)  Three years. 
C)  Six years. 
D)  Cannot be determined from the given information. 
A)  Two years. 
B)  Three years. 
C)  Six years. 
D)  Cannot be determined from the given information.

Question 4

Unrealized gains and losses from changes in the fair value of available-for-sale securities are reported as part of current net income.

Accepted Answer

A) True 
 B)False

Question 5

Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly classified as an available-for-sale 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 6

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

Accepted Answer

A) True 
 B)False

Question 7

Sandy Sensations purchases twenty, $1,000, 7%, 10-year bonds issued by Pizza Pier for $20,000 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 7%. 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 8

Libby Company purchased equity securities for $100,000 and classified them as trading 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 trading securities would be reported in the balance sheet at its $100,000 cost. 
B)  The investment in trading securities would be reported in the balance sheet at its $105,000 fair value. 
C)  An unrealized holding gain would be reported in other comprehensive income. 
D)  Both b and c are correct. 
A)  The investment in trading securities would be reported in the balance sheet at its $100,000 cost. 
B)  The investment in trading securities would be reported in the balance sheet at its $105,000 fair value. 
C)  An unrealized holding gain would be reported in other comprehensive income. 
D)  Both b and c are correct.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Under the equity method, the investor includes in net income its portion of the investee's net income.

Accepted Answer

A) True 
 B)False

Question 11

Sandy Sensations purchases twenty, $1,000, 7%, 10-year bonds issued by Pizza Pier for $21,488 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 6%. Interest is received semi-annually 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 12

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

Accepted Answer

A)  Acquiring debt of competing companies. 
B)  Appreciation in the value of the stock. 
C)  Earning interest revenue. 
D)  Deducting dividend payments for tax purposes. 
A)  Acquiring debt of competing companies. 
B)  Appreciation in the value of the stock. 
C)  Earning interest revenue. 
D)  Deducting dividend payments for tax purposes.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:

Accepted Answer

A)  As a reduction in the Investments account. 
B)  As an increase in the Investments account. 
C)  As dividend income. 
D)  As a contra item to stockholders' equity. 
A)  As a reduction in the Investments account. 
B)  As an increase in the Investments account. 
C)  As dividend income. 
D)  As a contra item to stockholders' equity.

Question 15

The statement of comprehensive income is a statement that includes net income plus investment by stockholders less payment of dividends.

Accepted Answer

A) True 
 B)False

Question 16

Sports Spectacular purchased 100,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly recorded using the equity method. 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 under the equity method?

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 17

Companies with large expansion plans, called growth companies, prefer to reinvest earnings in the growth of the company rather than distribute earnings back to investors in the form of cash dividends.

Accepted Answer

A) True 
 B)False

Question 18

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity:   GIC sells the bonds for $196,000 immediately after the interest payment on 12/31/12. What gain or loss, if any, would GIC record on this date?

Accepted Answer

A)  No gain or loss. 
B)  $370 loss. 
C)  $4,000 loss. 
D)  $4,000 gain. 
A)  No gain or loss. 
B)  $370 loss. 
C)  $4,000 loss. 
D)  $4,000 gain.

Question 19

The statement of comprehensive income is a statement in which we report all changes in stockholders' equity other than investment by stockholders and payment of dividends.

Accepted Answer

A) True 
 B)False

Question 20

On January 1, 2012, Gilman Company purchased 10,000 of the 200,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment. The records of Burke Corporation showed the following at December 31, 2012: $$\begin{array} { | l | l | } 
\hline \text { Net Income } & \$ 500,000 \
\hline \text { Dividends Paid } & \$ 200,000 \
\hline \text { Market Price per Share } & \$ 38 \
\hline
\end{array}$$ What amount should Gilman Company report in its December 31, 2012, balance sheet for its investment in Burke?

Accepted Answer

A)  $380,000. 
B)  $400,000. 
C)  $415,000. 
D)  $425,000. 
A)  $380,000. 
B)  $400,000. 
C)  $415,000. 
D)  $425,000.

The cash received from interest equals the face value of the investment in bonds times the stated interest rate.

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: Recording the bond purchase would have what effect on the financial statements?

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

Unrealized gains and losses from changes in the fair value of available-for-sale securities are reported as part of current net income.

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

Libby Company purchased equity securities for $100,000 and classified them as trading 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?

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

Under the equity method, the investor includes in net income its portion of the investee's net income.

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

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

When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:

The statement of comprehensive income is a statement that includes net income plus investment by stockholders less payment of dividends.

Companies with large expansion plans, called growth companies, prefer to reinvest earnings in the growth of the company rather than distribute earnings back to investors in the form of cash dividends.

The statement of comprehensive income is a statement in which we report all changes in stockholders' equity other than investment by stockholders and payment of dividends.

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

The cash received from interest equals the face value of the investment in bonds times the stated interest rate.

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: Recording the bond purchase would have what effect on the financial statements?

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

Unrealized gains and losses from changes in the fair value of available-for-sale securities are reported as part of current net income.

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

Libby Company purchased equity securities for $100,000 and classified them as trading 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?

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

Under the equity method, the investor includes in net income its portion of the investee's net income.

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

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

When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:

The statement of comprehensive income is a statement that includes net income plus investment by stockholders less payment of dividends.

Companies with large expansion plans, called growth companies, prefer to reinvest earnings in the growth of the company rather than distribute earnings back to investors in the form of cash dividends.

The statement of comprehensive income is a statement in which we report all changes in stockholders' equity other than investment by stockholders and payment of dividends.

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