Question 1

A company that owns more than 50% of the common stock of another company is known as the

Accepted Answer

A)  charge company. 
B)  subsidiary company. 
C)  parent company. 
D)  management company.

Question 2

Cantor Corporation's balance sheet at December 31, 2016, showed the following:
Short-term investments, at fair value $46,500
Cantor Corporation's equity portfolio of investments consisted of the following at December 31, 2016:  During 2017, the following transactions took place:  At year end on December 31, 2017, the fair values per share were: $$\begin{array}{l}
&\text { Fair Value Per Share }\
\text { Interstate Common Stock } & \$ 151.00 \
\text { Danforth Delta Preferred Stock } & \$ 13.00 \
\text { Georgia Common Stock } & \$ 33.00
\end{array}$$ Instructions
(a) Prepare the journal entries to record the 2017 stock transactions.
(b) On December 31, 2017, prepare any adjusting entry that might be necessary relative to the trading portfolio.
(c) Show how the stock investments will appear on Cantor Corporation's balance sheet at December 31, 2017.

Accepted Answer

The answer of Cantor Corporation's balance sheet at December 31,...

Question 3

Charleston Co. purchased 60, 6% APS Company bonds on January 1, 2017 for $60,000 cash. Interest is payable annually on January 1. The entry to record the December 31 interest accrual would include a

Accepted Answer

A)  debit to Interest Receivable for $3,600. 
B)  debit to Interest Revenue for $3,600. 
C)  credit to Cash Revenue for $3,600. 
D)  debit to Debt Investments for $3,600.

Question 4

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash. On December 1, the stock investments are sold for $71,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

Accepted Answer

The answer of On August 1, Basil Company buys 2,000...

Question 5

If one company owns more than 50% of the common stock of another company

Accepted Answer

A)  the cost method should be used to account for the investment. 
B)  a partnership exists. 
C)  a parent-subsidiary relationship exists. 
D)  the company whose stock is owned must be liquidated.

Question 6

Which of the following statements is true about investments classified as trading securities?

Accepted Answer

A)  The investor's intent and ability is to hold them to maturity. 
B)  They are valued on the balance sheet at cost. 
C)  They can consist of debt, but not equity, securities. 
D)  Changes in market value are reflected as part of net income.

Question 7

All of the following statements about short-term investments are true except

Accepted Answer

A)  short-term investments are also call marketable securities. 
B)  trading securities are always classified as short-term investments. 
C)  short-term investments are listed below accounts receivable in the current asset section of the balance sheet. 
D)  short-term assets must be readily marketable.

Question 8

Short-term investments are securities that are _____________ and ______________ to be converted into cash within the next year.

Accepted Answer

The answer of Short-term investments are securities that are _____________...

Question 9

Some companies purchase investments for strategic reasons believing the investment will increase in value and result in positive returns.

Accepted Answer

A) True 
 B)False

Question 10

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Accepted Answer

A) True 
 B)False

Question 11

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Accepted Answer

A) True 
 B)False

Question 12

On January 1, 2017, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1. LaRoche Company has a calendar year end. The adjusting entry on December 31, 2017, is

Accepted Answer

The answer of On January 1, 2017, the LaRoche Company...

Question 13

Mazzeo Company acquires 80 Dodd's 10%, 5 year, $1,000 bonds on January 1, 2017 for $80,000. The journal entry to record this investment includes a debit to

Accepted Answer

A)  Debt Investments for $88,000. 
B)  Debt Investments for $80,000. 
C)  Cash for $80,000. 
D)  Stock Investments for $80,000.

Question 14

On January 1, 2017, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1. JBT Company has a calendar year end. The entry for the receipt of interest on January 1, 2018 is

Accepted Answer

The answer of On January 1, 2017, JBT Company purchased...

Question 15

Giphons Corp. has common stock of $3,500,000, Retained Earnings of $1,800,000, unrealized gains on trading securities of $60,000 and unrealized losses on available-for-sale securities of $110,000. What is the total amount of their stockholders' equity?

Accepted Answer

A)  $5,190,000. 
B)  $5,300,000. 
C)  $5,240,000. 
D)  $5,130,000.

Question 16

If the cost of an available-for-sale security exceeds its fair value by $29,000, the entry to recognize the loss

Accepted Answer

A)  is not required since the share prices will likely rebound in the long run. 
B)  will show a debit to an expense account. 
C)  will show a credit to a valuation allowance account that appears in the stockholders' equity section of the balance sheet. 
D)  will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

Question 17

At December 31, 2017, the trading debt securities for Blue Bell, Inc. are as follow  Blue Bell should report the following amount related to the securities transactions in its 2017 income statement

Accepted Answer

A)  $2,000 gain. 
B)  $6,000 realized loss. 
C)  $6,000 unrealized loss. 
D)  $8,000 unrealized loss.

Question 18

In order to use the cost method of accounting for stock investments, how much stock must the investor own?

Accepted Answer

A)  Less than 20%. 
B)  More than 50%. 
C)  Between 20% and 50%. 
D)  The cost method is always used for stock investments of any size.

Question 19

The cost method of accounting for investments in stock should be used when the investment is

Accepted Answer

A)  influential and controlling. 
B)  influential and noncontrolling. 
C)  controlling. 
D)  non-influential and noncontrolling.

Question 20

The Fair Value Adjustment account can only have a credit balance or a zero balance.

Accepted Answer

A) True 
 B)False

Exam 15: Specimen Financial Statements: Pepsico, Inc

A company that owns more than 50% of the common stock of another company is known as the

Charleston Co. purchased 60, 6% APS Company bonds on January 1, 2017 for $60,000 cash. Interest is payable annually on January 1. The entry to record the December 31 interest accrual would include a

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash. On December 1, the stock investments are sold for $71,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

If one company owns more than 50% of the common stock of another company

Which of the following statements is true about investments classified as trading securities?

All of the following statements about short-term investments are true except

Short-term investments are securities that are _ and __ to be converted into cash within the next year.

Some companies purchase investments for strategic reasons believing the investment will increase in value and result in positive returns.

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

On January 1, 2017, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1. LaRoche Company has a calendar year end. The adjusting entry on December 31, 2017, is

Mazzeo Company acquires 80 Dodd's 10%, 5 year, $1,000 bonds on January 1, 2017 for $80,000. The journal entry to record this investment includes a debit to

On January 1, 2017, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1. JBT Company has a calendar year end. The entry for the receipt of interest on January 1, 2018 is

Giphons Corp. has common stock of $3,500,000, Retained Earnings of $1,800,000, unrealized gains on trading securities of $60,000 and unrealized losses on available-for-sale securities of $110,000. What is the total amount of their stockholders' equity?

If the cost of an available-for-sale security exceeds its fair value by $29,000, the entry to recognize the loss

At December 31, 2017, the trading debt securities for Blue Bell, Inc. are as follow Blue Bell should report the following amount related to the securities transactions in its 2017 income statement

In order to use the cost method of accounting for stock investments, how much stock must the investor own?

The cost method of accounting for investments in stock should be used when the investment is

The Fair Value Adjustment account can only have a credit balance or a zero balance.