Question 1

A company should report its portfolio of trading securities at its fair value.

Accepted Answer

A) True 
 B)False

Question 2

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

Accepted Answer

A) True 
 B)False

Question 3

When an investment in an equity security is sold,the sale proceeds are compared with the cost,and if the cost is greater than the proceeds,a gain on the sale of the security is recorded.

Accepted Answer

A) True 
 B)False

Question 4

Available-for-sale debt securities are:

Accepted Answer

A) Recorded at cost and remain at cost over the life of the investment. 
B) Reported at historical cost,adjusted for the amortized amount of any difference between cost and maturity value. 
C) Reported at fair value on the balance sheet. 
D) Intended to be held to maturity. 
E) Always classified as Long-Term Investments.

Question 5

Zhang Corp.owns 40% of Magnor Company's common stock.Magnor pays $97,000 in total cash dividends to its shareholders.Zhang's entry to record this transaction should include a:

Accepted Answer

A) Debit to Dividends for $97,000. 
B) Debit to Dividends for $38,800. 
C) Debit to Equity Method Investments for $97,000. 
D) Credit to Equity Method Investments for $38,800. 
E) Credit to Cash for $97,000.

Question 6

Lessington Corporation purchases Gonzalez Company bonds for $150,000 as a long-term investment.The investment is classified as available-for-sale securities.Lessington's entry to record the purchase transaction would include a:

Accepted Answer

A) Debit to Debt Investments-AFS for $150,000. 
B) Credit to Debt Investments-AFS for $150,000. 
C) Credit Gain on Long-Term Investment $146,000. 
D) Debit to Debt Investments-HTM for $150,000. 
E) Credit to Debt Investments-HTM for $150,000.

Question 7

The two business entities involved in an investment in securities with controlling influence,for which consolidated financial statements are prepared,are known as:

Accepted Answer

A) Parent and Investor 
B) Subsidiary and Investee 
C) Consolidator and Parent 
D) Parent and Subsidiary 
E) Both are referred to as partners.

Question 8

Cosmos Corporation had the following long-term investment transactions.
 Jan 2 $\quad$Purchased 5,000 shares of Visual, Inc. for $ \$ 42 $ per share plus $ \$ 7,000 $ in fees 
$\quad$$\quad$$\quad$and commission. These shares represent a $ 35 \% $ ownership of Visual.
Oct 15 $\quad$Received Visual, Inc. cash dividend of $ \$ 2 $ per share.
Dec 31 $\quad$Visual reported a net loss of $ \$ 66,000 $ for the year. Prepare the journal entries Cosmos Corporation should record for these transactions and events.

Accepted Answer

The answer of Cosmos Corporation had the following long-term investment...

Question 9

All companies desire a low return on total assets.

Accepted Answer

A) True 
 B)False

Question 10

Define the return on total assets and explain how it is used to measure a company's financial performance.

Accepted Answer

The answer of Define the return on total assets and...

Question 11

Held-to-maturity securities are debt securities a company intends and is able to hold until maturity.

Accepted Answer

A) True 
 B)False

Question 12

A company had net income of $40,000,net sales of $300,000,and average total assets of $200,000.Its profit margin and total asset turnover were respectively:

Accepted Answer

A) 13.3%; 0.2. 
B) 13.3%; 1.5. 
C) 2.0%; 1.5. 
D) 1.5%; 0.2. 
E) 1.5%; 13.3.

Question 13

All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:

Accepted Answer

A) Under the equity method,the share of investee's net income is reported in the investor's income in the same period the investee earns that income. 
B) Under the consolidation method,investee and investor revenues and expenses are combined. 
C) Under the equity method,the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends. 
D) Under the consolidation method,nonintercompany assets and liabilities are combined (eliminating the need for an investment account). 
E) U.S.GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.

Question 14

The equity method of accounting is used for long-term investments in equity securities with significant influence.

Accepted Answer

A) True 
 B)False

Question 15

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.It sold the shares on December 13 for $42,100.Prepare Lander's journal entry to record this sale.

Accepted Answer

The answer of Landers,Inc.,held 1,500 of Shipman Company common stock...

Question 16

Landmark Corp.buys $300,000 of Schroeter Company's 8%,5-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the 5-year life.The journal entry to record the purchase should include:

Accepted Answer

A) A debit to Debt Investments-AFS $300,000. 
B) A debit to Short-Term Investments-Trading $300,000. 
C) A debit to Debt Investments-HTM $300,000. 
D) A debit to Short-Term Investments-AFS $300,000. 
E) A debit to Cash $300,000.

Question 17

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

Accepted Answer

A) True 
 B)False

Question 18

At acquisition,debt securities are:

Accepted Answer

A) Recorded at their cost,plus total interest that will be received over the life of the security. 
B) Recorded at the amount of interest that will be received over the life of the security. 
C) Recorded at cost. 
D) Not recorded,because no interest is due yet. 
E) Recorded at cost plus the amount of dividend income to be received.

Question 19

Unrealized gains and losses on stock investments with insignificant influence are reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 20

On December 31 of the prior year,Anna Company owned 1,000 shares of Egert Company common stock with a cost of $12,000 and a fair value of $11,000.This is the only investment held by Anna.On June 1 of the current year,Anna sells 500 of the Egert company shares for $7,200.On December 31 of the current year,the fair value of Egert Company common stock was $13 per share.Anna made no other purchases or sales of investments during the current year.The journal entry to record the sale of the shares on June 1 is:

Accepted Answer

A) Debit Cash,$7,200; Credit Stock Investments - Egert Company,$6,000; Credit Unrealized Gain - Income,$1,200.Combined financial statements 
B) Debit Cash,$7,200; Credit Stock Investments - Egert Company,$5,500; Credit Gain on Sale of Stock Investments,$1,700. 
C) Debit Cash,$7,200; Credit Stock Investments - Egert Company,$6,000; Credit Gain on Sale of Stock Investments,$1,200. 
D) Debit Cash,$7,200; Debit Unrealized Gain - Income,$500; Credit Stock Investments - Egert Company,$5,000; Credit Gain on Sale of Stock Investments,$1,700. 
E) Debit Cash,$7,200; Credit Unrealized Loss - Income,$500; Credit Stock Investments - Egert Company,$6,000; Credit Gain on Sale of Stock Investments,$700.

Exam 15: Investments

A company should report its portfolio of trading securities at its fair value.

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

When an investment in an equity security is sold,the sale proceeds are compared with the cost,and if the cost is greater than the proceeds,a gain on the sale of the security is recorded.

Available-for-sale debt securities are:

Zhang Corp.owns 40% of Magnor Company's common stock.Magnor pays $97,000 in total cash dividends to its shareholders.Zhang's entry to record this transaction should include a:

Lessington Corporation purchases Gonzalez Company bonds for $150,000 as a long-term investment.The investment is classified as available-for-sale securities.Lessington's entry to record the purchase transaction would include a:

The two business entities involved in an investment in securities with controlling influence,for which consolidated financial statements are prepared,are known as:

All companies desire a low return on total assets.

Define the return on total assets and explain how it is used to measure a company's financial performance.

Held-to-maturity securities are debt securities a company intends and is able to hold until maturity.

A company had net income of $40,000,net sales of $300,000,and average total assets of $200,000.Its profit margin and total asset turnover were respectively:

All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:

The equity method of accounting is used for long-term investments in equity securities with significant influence.

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.It sold the shares on December 13 for $42,100.Prepare Lander's journal entry to record this sale.

Landmark Corp.buys $300,000 of Schroeter Company's 8%,5-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the 5-year life.The journal entry to record the purchase should include:

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

At acquisition,debt securities are:

Unrealized gains and losses on stock investments with insignificant influence are reported on the income statement.