Deck 8: Long-Term Investments: The Time Value of Money

Question 1

When an investment is readily convertible to cash and the investor plans to convert the investment to cash within one year,the investment is reported on the balance sheet as:

A)a current asset.
B)a long-term asset.
C)stockholders' equity.
D)a cash equivalent.

Answer 1

A

Question 2

Bond investments are initially recorded at cost.

Answer 2

True

Question 3

On January 1,2015,Centre Company purchases $100,000,6% bonds at a price of 95 and a maturity date of January 1,2025.Centre Company intends to hold the bonds until the maturity date.Interest is paid semiannually,on January 1 and July 1.Centre Company has a calendar year end.The journal entry on January 1,2016 is:

A)debit Cash $6,000 and credit Interest Revenue $6,000.
B)debit Cash $6,000 and credit Interest Receivable $6,000.
C)debit Cash $3,000 and credit Interest Revenue $3,000.
D)debit Cash $3,000 and credit Interest Receivable $3,000.

Answer 3

D

Question 4

An investment is a held-to-maturity investment in bonds if it is management's intent to sell the investment before the maturity date.

Question 5

If $100,000 face value bonds are issued at 103,the bonds are selling for $103,000.

Question 6

The market prices of bonds fluctuate inversely with market interest rates.

Question 7

If the market interest rate is greater than the coupon rate of interest on a bond,the bond will sell at a discount.

Question 8

If bonds are issued at a premium,the carrying amount of the bonds will be greater than the face value of the bonds until the maturity date.

Question 9

On January 1,2015,Benson Company purchases $100,000,6% bonds at a price of 95 and a maturity date of January 1,2020.Benson Company plans to hold the bonds until their maturity date.Interest is paid semiannually,on January 1 and July 1.Benson Company has a calendar year end.The adjusting entry on December 31,2015 is:

A)debit Cash $3,000 and credit Interest Revenue $3,000.
B)debit Cash $6,000 and credit Interest Revenue $6,000.
C)debit to Interest Receivable $3,000,debit Held-to-Maturity Investment in Bonds for $500 and credit Interest Revenue $3,500.
D)debit to Interest Receivable $6,000 and credit Interest Revenue $6,000.

Question 10

The stated interest rate on a bond determines the amount of interest the issuer is expected to pay annually or semiannually.

Question 11

Investments are classified as available-for-sale securities,trading securities or held-to-maturity securities.

Question 12

On January 1,2014,Winston Company purchased 6% bonds with a face value of $50,000 for par.Winston Company intends to hold the bonds until maturity.Interest is payable semiannually on July 1 and January 1.The company's fiscal year ends on December 31.The journal entry on July 1,2014 is:

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

Question 13

If the stated rate of interest on a bond exceeds the market rate of interest,the bond will sell at a premium.

Question 14

On January 1,2015,Dooley Company purchases $100,000,6% bonds at a price of 90.4 and a maturity date of January 1,2025.Dooley Company intends to hold the bonds until their maturity date.Interest is paid semiannually,on January 1 and July 1.Dooley Company has a calendar year end.The entry for the receipt of interest on July 1,2015 is:

A)debit Cash for $3,000 and credit Interest Revenue for $3,000.
B)debit Cash for $6,000 and credit Interest Revenue for $6,000.
C)debit Investment in Bonds for $3,000 and credit Interest Revenue for $3,000.
D)debit Investment in Bonds for $6,000 and credit Interest Revenue for $6,000.

Question 15

On January 1,2015,Brooklyn Company purchases $100,000,6% bonds at a price of 95 and a maturity date of January 1,2025.Brooklyn Company intends to hold the bonds until maturity.Interest is paid semiannually,on January 1 and July 1.Brooklyn Company has a calendar year end.The adjusting entry to amortize the bond investment on December 31,2015 is:

A)debit Interest Receivable $3,000 and credit Interest Revenue $3,000.
B)debit Interest Receivable $6,000 and credit Interest Revenue $6,000.
C)debit Held-to-Maturity Investment in Bonds $250 and credit Interest Revenue $250.
D)debit Held-to-Maturity Investment in Bonds $500 and credit Interest Revenue $500.

Question 16

On the balance sheet,Interest Receivable is reported as a long-term asset.

Question 17

The carrying amount of bonds at maturity should be equal to the face value of the bonds.

Question 18

Marathon Corporation owns 500 shares of Mini Company's common stock.Mini Company has 100,000 shares of common stock outstanding.Marathon Corporation is the ________ and Mini Company is the ________.

A)investee; investor
B)investor; investee
C)parent company; subsidiary company
D)controlling company; noncontrolling company

Question 19

On January 1,2015,Dodge Company purchases $100,000,6% bonds at a price of 90.4 and a maturity date of January 1,2025.Dodge Company intends to hold the bonds until their maturity date.Interest is paid semiannually,on January 1 and July 1.Dodge Company has a calendar year end.The entry to record the purchase of the bond investment on January 1,2015,is:

A)debit Held-to-Maturity Investment in Bonds for $100,000 and credit Cash for $100,000.
B)debit Held-to-Maturity Investment in Bonds for $90,400 and credit Cash for $90,400.
C)debit Cash for $100,000 and credit Bonds Payable for $100,000.
D)debit Cash for $90,400 and credit Investment in Bonds for $90,400.

Question 20

On January 1,2015,Corbin Company purchases $100,000,5% bonds at a price of 99 and a maturity date of January 1,2025.Corbin Company intends to hold the bonds until their maturity date.Interest is paid semiannually,on January 1 and July 1.Corbin Company has a calendar year end.The entry to amortize the bond investment on July 1,2015 is:

A)debit Held-to-Maturity Investment in Bonds for $50 and credit Interest Receivable for $50.
B)debit Cash for $100 and credit Interest Revenue for $100.
C)debit Held-to-Maturity Investment in Bonds for $50 and credit Interest Revenue for $50.
D)debit Held-to-Maturity Investment in Bonds for $100 and credit Interest Revenue for $100.

Question 21

Long-term investments include:

A)stocks and bonds.
B)securities that the investor expects to hold longer than one year.
C)securities reported in the noncurrent asset section of the balance sheet.
D)all of the above.

Question 22

An investor should report securities that he or she intends to sell in the next 12 months,and that are liquid,as a current asset.

Question 23

On January 1,2014,Bucket Company purchased as an investment a $1,000,7% bond for $980.Bucket plans to hold the bond until the maturity date of January 1,2024.The bond pays interest on January 1 and July 1.The company's fiscal year ends on December 31.The journal entry on December 31,2014 is:

A)debit Interest Receivable for $35,debit Held-to-Maturity Investment in Bond for $1 and credit Interest Revenue for $36.
B)debit Cash for $35 and credit Interest Revenue for $35.
C)debit Interest Receivable for $36,credit Held-to-Maturity Investment in Bonds for $1 and credit Interest Revenue for $35.
D)debit Held-to-Maturity Investment in Bonds for $35 and credit Interest Revenue for $35.

Question 24

On January 1,2014,Pale Company purchased as an investment a $1,000,7% bond for $760.Pale plans to hold the bond until the maturity date on January 1,2024.The bond pays interest on January 1 and July 1.The company's fiscal year ends on December 31.The entries on December 31,2014 would include a:

A)debit Interest Receivable for $35.
B)debit Held-to-Maturity Investment in Bonds for $35.
C)debit Interest Receivable for $10.
D)debit Held-to-Maturity Investment in Bonds for $10.

Question 25

Unrealized Gain on Investment in Available-for-Sale Securities is reported as other comprehensive income on a Statement of Comprehensive Income.

Question 26

Realized gains on the sale of long-term available-for-sale securities are reported as other comprehensive income on the Statement of Comprehensive Income.

Question 27

An investor purchased bonds and intends to hold them until the maturity date which is 10 years into the future.The bonds were purchased at a discount and pay interest semiannually.Which journal entry or entries is(are)needed at each interest date?

A)receipt of interest revenue only
B)amortization of bond discount only
C)amortization of bond premium only
D)A and B

Question 28

Long-term available-for-sale investments are adjusted to fair value at the end of each accounting period.

Question 29

On January 1,2014,Winston Company purchased 6% bonds with a face value of $50,000 for par.Winston Company intends to hold the bonds until maturity.Interest is payable semiannually on July 1 and January 1.The company's fiscal year ends on December 31.The journal entry on December 31,2014 is:

A)debit Interest Receivable for $1,500 and credit Held-to-Maturity Investment in Bonds $1,500.
B)debit Cash for $1,500 and credit Interest Revenue for $1,500.
C)debit Interest Receivable for $1,500 and credit Interest Revenue for $1,500.
D)debit Interest Receivable for $3,000 and credit Held-to-Maturity Investment in Bonds $3,000.

Question 30

The Allowance to Adjust Investment in Available-for-Sale Securities to Market account will always have a debit balance.

Question 31

An investor purchased bonds and intends to hold them until the maturity date which is 10 years into the future.The bonds were purchased at a discount.One year after purchase,this Held-to-Maturity Investment in Bonds will be reported at ________ on the balance sheet.

A)fair value
B)historical cost
C)lower of cost or market
D)amortized cost

Question 32

An investor has a long-term available-for-sale stock investment.The investor receives a stock dividend on the stock investment.No journal entry is necessary for the stock dividend.

Question 33

Long-term available-for-sale investments in stock are reported on the balance sheet at cost.

Question 34

On January 1,2014,Exclusive Company purchases $10,000 of 6% bonds in Smiley Company at a price of 95.Exclusive Company intends to hold the bonds until the maturity date on January 1,2024.The interest dates are January 1 and July 1.Exclusive Company amortizes any discount or premium using the straight-line method.The fiscal year end of Exclusive Company is December 31.
Required:
Prepare the journal entries on:
1.January 1,2014
2.July 1,2014
3.December 31,2014
4.January 1,2015
Explanations are not required.

Question 35

On January 1,2015,Carmody Corporation purchased 5% bonds with a face value of $40,000 for $42,000.Carmody Corporation intends to hold the bonds until the maturity date.Interest is paid semiannually on January 1 and July 1.The journal entry on January 1,2015 is:

A)debit Held-to-Maturity Investment in Bonds for $40,000,debit Premium on Bonds for $2,000 and credit Cash for $42,000.
B)debit Held-to-Maturity Investment in Bonds for $42,000 and credit Cash for $42,000.
C)debit Investment in Bonds for $42,000 and credit Interest Revenue for $42,000.
D)debit Investment in Bonds for $40,000,debit Premium on Bonds for $2,000 and credit Interest Revenue $42,000.

Question 36

Unrealized gains on investments in available-for-sale securities result from sales of the securities.

Question 37

The Allowance to Adjust Investment in Available-for-Sale Securities to Market account is a liability account.

Question 38

Held-to-maturity investments in bonds are initially reported at ________ on the purchase date.On a subsequent balance sheet date,the bonds are reported at ________.

A)cost; fair value.
B)amortized cost; fair value.
C)cost; amortized cost.
D)cost; lower of cost or market.

Question 39

On January 1,2015,Carmello Corporation purchased 5% bonds with a face value of $50,000 for $42,000.Carmello Corporation intends to hold the bonds until the maturity date of January 1,2025.Interest is paid semiannually on January 1 and July 1.What journal entry(ies)is(are)prepared on July 1,2015?

A)debit Cash $1,250 and credit Interest Receivable $1,250
B)debit Cash $2,500 and credit Interest Revenue $2,500
C)debit Interest Receivable $1,250 and credit Interest Revenue $1,250; debit Held-to-Maturity Investment in Bonds $400 and credit Interest Revenue $400
D)debit Cash $1,250 and credit Interest Revenue $1,250; debit Held-to-Maturity Investment in Bonds $400 and credit Interest Revenue $400

Question 40

Cash dividends received on stock investments with less than 20% ownership of the investee should be credited to the Investment in Available-for-Sale Securities account.

Question 41

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

A)the purchase of an investment.
B)the sale of the investment.
C)changes in the fair value of the investment.
D)investor's share of investee's net income or net loss.

Question 42

The Allowance to Adjust Investment in Available-for-Sale Securities to Market has a debit balance.Therefore:

A)the Allowance account is subtracted from the carrying amount of the Investment in Available-for-Sale Securities.
B)the Allowance account is added to the carrying amount of the Investment in Available-for-Sale Securities.
C)the Allowance account is neither added nor subtracted from the carrying amount of the Investment in Available-for-Sale Securities.
D)the Allowance account is added to Unrealized Gain or Loss on Investment in Available-for-Sale Securities.

Question 43

The available-for-sale(fair value)method of accounting for long-term investments in stock should be used when the:

A)investor owns less than 20% of the outstanding stock of the investee.
B)investor has significant influence over the investee's operating decisions and policies.
C)investor has little or no influence on the investee.
D)A and C.

Question 44

If 15% of the common stock of an investee company is purchased as a long-term investment,the appropriate method of accounting for the investment is:

A)the equity method.
B)the consolidation method.
C)the available-for-sale(fair value)method.
D)the lower of cost or market method.

Question 45

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

A)the purchase of an investment.
B)the sale of the investment.
C)changes in the fair value of the investment.
D)investor's share of investee's net income or net loss.

Question 46

The fair value of a long-term available-for-sale security has increased from the last carrying value.The company uses an allowance account to adjust the investment.The journal entry to record this increase will include:

A)a debit to the Allowance to Adjust Investment in Available-for-Sale Securities to Market.
B)a credit to the Allowance to Adjust Investment in Available-for-Sale Securities to Market.
C)a debit to the Unrealized Gain on Investment in Available-for-Sale Securities.
D)a credit to the Unrealized Loss on Investment in Available-for-Sale Securities.

Question 47

On each balance sheet after the purchase date,long-term available-for-sale investments in stock are reported at:

A)cost.
B)the lower-of-cost-or-market.
C)amortized cost.
D)fair value.

Question 48

If an investor owns less than 20% of the common stock of another company as a long-term investment:

A)the equity method of accounting should be used for the investment.
B)the investor has a controlling interest in the investee.
C)the investor usually has little or no influence on the investee.
D)the investor has significant influence on the investee.

Question 49

An investor receives a stock dividend from a long-term available-for-sale investment.Which journal entry is required?

A)a debit to Cash and a credit to Dividend Revenue
B)a debit to Cash and a credit to Unrealized Gain on Investments
C)a debit to Investment in Available-for-Sale Securities and a credit to Dividend Revenue
D)a memorandum entry only

Question 50

An investor receives a cash dividend from a long-term available-for-sale investment.Which journal entry is required?

A)a debit to Cash and a credit to Dividend Revenue
B)a debit to Cash and a credit to Interest Revenue
C)a debit to Cash and credit to Investment in Available-for-Sale Securities
D)a debit to Cash and credit to Interest Receivable

Question 51

Pansee Company had the following transactions pertaining to stock investments: a.February 1,Purchased 3,000 shares of Hudson Company (10% ownership)at the market price of $17 per share.Pansee Company intends to keep the stock for more than one year and classifies the stock as available-for-sale.
B.June 1,Received cash dividends of $6,000 on Hudson Company stock.
C.June 30,End of accounting period.Fair value of Hudson Company stock is $50,000.The company uses an allowance account to adjust the investment.
What journal entry is prepared on June 30?

A)debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and credit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000
B)debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000
C)debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and credit Investment in Available-for-Sale Securities for $1,000
D)debit Investment in Available-for-Sale Securities for $1,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $1,000

Question 52

For accounting purposes,the method used to account for long-term investments in common stock is determined by:

A)the size of the investor.
B)the size of the investor when compared to the size of the investee.
C)vote by the Board of Directors of the investor.
D)the investor's percentage ownership of the investee's stock.

Question 53

The Unrealized Gain on Investment in Available-for-Sale Securities is reported in:

A)Other Revenues and Gains on the income statement.
B)Other Comprehensive Income on the Statement of Comprehensive Income.
C)Accumulated Other Comprehensive Income on the balance sheet.
D)B and C.

Question 54

A company purchased a long-term available-for-sale security at a cost of $50,000.At year end,the fair value is $50,290.The adjusting entry requires a credit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $290.

Question 55

On the purchase date,long-term available-for-sale equity securities are reported on the balance sheet at:

A)cost.
B)the lower-of-cost-or-market.
C)amortized cost.
D)fair value.

Question 56

The balance in the Unrealized Gain on Investment in Available-for-Sale Securities account is reported on the ________.The investments are classified as long-term.

A)balance sheet as a contra asset account
B)income statement under Other Expenses and Losses
C)balance sheet,as part of the stockholders' equity section
D)balance sheet,as part of Long-Term Investments

Question 57

Poultry Company had the following transactions pertaining to stock investments: a.February 1,Purchased 3,000 shares of Hudson Company (10% ownership)at the market price of $17 per share.Poultry Company intends to keep the stock for more than one year and classifies the stock as available-for-sale.
B.June 1,Received cash dividends of $0.50 per share on Hudson Company stock.
C.October 1,Sold 3,000 shares of Hudson stock for $54,000.
What journal entry is prepared on June 1?

A)debit Cash $1,500 and credit Interest Revenue $1,500.
B)debit Cash $3,000 and credit Long-Term Investment for $3,000.
C)debit Interest Receivable for $1,500 and credit Interest Revenue for $1,500.
D)debit Cash $1,500 and credit Dividend Revenue for $1,500.

Question 58

When accounting for long-term investments in available-for-sale securities,which of the following is used to compute net income?

A)Unrealized Gains on Investments in Available-for-Sale Securities
B)Realized Gains on Investments in Available-for-Sale Securities
C)Dividend Revenue
D)B and C

Question 59

Purdue Company had the following transactions pertaining to stock investments: a.February 1,Purchased 3,000 shares of Hudson Company (10% ownership)at the market price of $17 per share.Purdue Company intends to keep the stock for more than one year and classifies the stock as available-for-sale.
B.June 1,Received cash dividends of $6,000 on Hudson Company stock.
C.October 1,Sold 3,000 shares of Hudson stock for $54,000.
The journal entry to record the purchase of the Hudson stock is:

A)debit Equity-Method Investment for $51,000 and credit Cash for $51,000.
B)debit Investment in Available-for-Sale Securities for $51,000 and credit Cash for $51,000.
C)debit Cash for $51,000 and credit Common Stock for $51,000.
D)debit Common Stock for $51,000 and credit Cash for $51,000.

Question 60

The fair value of a long-term available-for-sale security has decreased from the last carrying value.The journal entry to record this decrease will include:

A)a debit to the Allowance to Adjust Investment in Available-for-Sale Securities to Market.
B)a credit to the Allowance to Adjust Investment in Available-for-Sale Securities to Market.
C)a credit to the Unrealized Loss on Investment in Available-for-Sale Securities.
D)a debit to the Unrealized Gain on Investment in Available-for-Sale Securities.

Question 61

Other comprehensive income:

A)is a separate section of stockholders' equity on the balance sheet.
B)is reported in the liability section of the balance sheet.
C)is reported on the statement of comprehensive income.
D)is reported in the long-term investments section of the balance sheet.

Question 62

Which method is used when one company owns less than 20% of the shares of another company?

A)consolidation method
B)fair value method
C)equity method
D)amortized cost

Question 63

The Allowance to Adjust Investment in Available-for-Sale Securities to Market is:

A)a required account used with Investment in Available-for-Sale Securities.
B)an optional account to Investment in Available-for-Sale Securities.
C)always added to the Investment in Available-for-Sale Securities.
D)always subtracted from the Investment in Available-for-Sale Securities.

Question 64

U.S.Generally Accepted Accounting Principles require that a company adjust ________ of available-for-sale securities to ________ at the end of each accounting period.

A)each security; amortized cost
B)each security; lower of cost or market
C)the portfolio; current replacement cost
D)the portfolio; fair value

Question 65

A company has a long-term investment in available-for-sale securities.The Unrealized Gain on (long-term)Investment in Available-for-Sale Securities is reported as:

A)Other Comprehensive Income in the Statement of Comprehensive Income.
B)Other Gains on the income statement.
C)Accumulated Other Comprehensive Income on the balance sheet.
D)A and C.

Question 66

How does the receipt of a stock dividend on long-term Investment in Available-for-Sale Securities affect the balance sheet?

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 stockholders' equity

Question 67

On January 1,2014,a company purchased long-term available-for-sale securities in one company.The cost was $100,000 and the investor owns 5% of the outstanding common stock of the investee.The investor does not use an allowance account to adjust the investment.At December 31,2014,the fair value of the investment is $97,000.What journal entry is needed on December 31,2014?

A)debit Unrealized Loss on Investment in Available-for-Sale Securities for $3,000 and credit Investment in Available-for-Sale Securities for $3,000
B)debit Investment in Available-for-Sale Securities for $2,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $2,000
C)debit Investment in Available-for-Sale Securities for $5,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $5,000
D)debit Investment in Available-for-Sale Securities for $3,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $3,000

Question 68

A company has a long-term Investment in Available-for-Sale Securities.The intent is to hold the stock investment for many years,but not until maturity.The investor's percentage ownership is 5%.On January 1,2014,the purchase date,the cost of the stock investment was $100,000.On December 31,2014,the fair value of the investment is $99,000.An allowance account is used to write-down the investment.On January 10,2015,the investor sold the stock for $95,000.What journal entries are required on January 10,2015?

A)debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000
B)debit Cash for $95,000,debit Loss on Sale of Investment in Available-for-Sale Securities for $5,000 and credit Investment in Available-for-Sale Securities for $100,000
C)debit Cash for $95,000,debit Loss on Sale of Investment of Available-for-Sale Securities for $4,000 and credit Investment in Available-for-Sale Securities for $99,000
D)A and B

Question 69

An investor receives a stock dividend on a long-term Investment in Available-for-Sale Securities.What journal entry is required?

A)debit Cash and credit Investment in Available-for-Sale Securities
B)debit Cash and credit Dividend Revenue
C)debit Investment in Available-for-Sale Securities and credit Investment Revenue
D)No journal entry is required.

Question 70

Seider Company receives a stock dividend of 100 shares from Dolhun Company.Seider previously owned 750 shares of Dolhun stock that had a cost of $4,800.After the stock dividend,the cost per share of Dolhun stock is now:

A)$5.40.
B)$5.65.
C)$5.76.
D)$6.40.

Question 71

On January 1,2014,Imagine Corporation purchases bonds in Berkeley Company.The bonds mature on January 1,2024.Imagine Corporation intends to hold the bonds longer than one year but not until the maturity date.How should Imagine Corporation classify these bonds?

A)trading security
B)held-to-maturity investment in bonds
C)equity method investment
D)investment in available-for-sale securities

Question 72

A long-term investment in available-for-sale securities was acquired at a cost of $40,000.At year-end,the fair value of the securities is $42,250.The year-end adjusting entry requires a:

A)credit Investment in Available-for-Sale Securities for $2,250.
B)debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $2,250.
C)credit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $2,250.
D)debit Unrealized Loss on Investment in Available-for-Sale Securities for $2,250.

Question 73

On January 1,2014,Jude Corporation purchases stock in Gelco Company.Jude Corporation owns 1% of the outstanding stock of Gelco Company.Jude Corporation intends to hold the stock for longer than one year.How should Jude Corporation classify this stock?

A)trading security
B)held-to-maturity investment in bonds
C)equity-method investment
D)investment in available-for-sale securities

Question 74

The gain or loss on the sale of an investment classified as a long-term available-for-sale-security is calculated by comparing the ________ of the investment with the ________ of the investment.

A)carrying value; selling price
B)fair value at last balance sheet date; selling price
C)cost; selling price
D)fair value at date of sale; selling price

Question 75

Long-term available-for-sale securities can be:

A)bonds held to maturity.
B)bonds not held to maturity,but held for more than one year.
C)stocks other than trading securities and equity-method securities.
D)B and C.

Question 76

Following U.S.Generally Accepted Accounting Principles,the fair value of a stock investment should be determined using ________.Assume the stock is listed on a publicly-traded securities exchange.

A)quoted prices in active markets for identical stocks
B)quoted prices for similar stocks
C)the investor's own estimates based on certain assumptions
D)the investor's educated guesses

Question 77

How does the receipt of a cash dividend on a long-term Investment in Available-for-Sale Securities affect the balance sheet?

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 stockholders' equity

Question 78

The Allowance to Adjust Investment in Available-for-Sale Securities to Market account has a current credit balance of $892.Long-term available-for-sale investments with a cost of $17,000 have a current fair value of $18,500.The adjusting entry will require a:

A)credit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $608.
B)credit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $2,392.
C)debit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $608.
D)debit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $2,392.

Question 79

The journal entry to record the sale of a long-term available-for-sale investment includes a Gain on Sale of Investment in Available-for-Sale Securities for $500.The income statement will report:

A)other comprehensive income of $500.
B)other income and gains of $500.
C)an extraordinary gain of $500.
D)accumulated other comprehensive income of $500.

Question 80

The Allowance to Adjust Investment in Available-for-Sale Securities to Market account has a current credit balance of $1,000 after the adjustment at year-end.Available-for-sale investments have a fair value of $20,000.The original cost of the investments was $21,000.The carrying value of the investments is:

A)$18,000.
B)$19,000.
C)$20,000.
D)$21,000.