Question 1

If a stock investment is sold at a gain, the gain

Accepted Answer

A)   is reported as operating revenue.
B)   is reported under a special section, "Discontinued investments," on the income statement.
C)   is reported in the Other Revenue and Gain section of the income statement.
D)   contributes to gross profit on the income statement. C

Question 2

Compound interest is the return on principal

Accepted Answer

A)   only.
B)   for one or more periods.
C)   for two or more periods.
D)   for one period. C

Question 3

When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table of the

Accepted Answer

A)   present value of 1.
B)   present value of an annuity of 1.
C)   future value of 1.
D)   future value of an annuity of 1. B

Question 4

On January 1, 2014, Orleans industries acquired a 15% interest in Florida Corporation through the purchase of 12,000 shares of Florida Corporation common stock for $320,000. During 2014, Florida Corp. paid $80,000 in dividends and reported a net loss of $100,000. Orleans is able to exert significant influence on Florida. However, Orleans mistakenly records these transactions using the cost method rather than the equity method of accounting. Which of the following would show the correct presentation for Orlean's investment using the equity method?

Accepted Answer

The answer of On January 1, 2014, Orleans industries acquired...

Question 5

In accounting for stock investments of less than 20%, the equity method is typically used.

Accepted Answer

A) True 
 B)False

Question 6

When determining the proceeds received when issuing a bond, the factor applied to the amount of the bond principal is determined from the table of the

Accepted Answer

A)   present value of 1.
B)   present value of an annuity 1.
C)   future value of 1.
D)   future value of an annuity 1.

Question 7

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on July 1, 2014, is

Accepted Answer

The answer of On January 1, 2014, the LaRoche Company...

Question 8

Santos Corporation has the following trading portfolio of stock investments as of December 31, 2013. $\begin{array}{rrr} \text { Security }& \text { Cost } & \text { Fair Value } \
\mathrm{A} & \$ 17,000 & \$ 16,000 \
\mathrm{~B} & 23,000 & 25,000 \
\mathrm{C} & 32,000 & 28,000\&\$72,000&\$69,000
\end{array}$ On January 22, 2014, Santos Corporation sold security C for $30,000.
Instructions
(a) Prepare the adjusting entry for Santos Corporation on December 31, 2013 to report the portfolio at fair value.
(b) Indicate the balance sheet and income statement presentation of the fair value data for the Santos Corporation at December 31, 2013.
(c) Prepare the journal entry for the 2014 sale.

Accepted Answer

The answer of Santos Corporation has the following trading portfolio...

Question 9

_______________ securities are bought and held primarily for sale in the near future.

Accepted Answer

The answer of _______________ securities are bought and held primarily...

Question 10

Deutsche Corporation's trading portfolio at the end of the year is as follows:  Deutsche subsequently sells Common Stock B for $17,000. What entry is made to record the sale?

Accepted Answer

The answer of Deutsche Corporation's trading portfolio at the end...

Question 11

Valente Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 10%, payable semiannually. The discount rate for such securities is 8%. How much can Valente expect to receive from the sale of these bonds?

Accepted Answer

A)   $2,768,338
B)   $3,000,000
C)   $3,243,315
D)   $3,231,660

Question 12

Jambon Company owns 10% interest in the stock of Fanth Corporation. During the year, Fanth pays $8,000 in dividends to Jambon, and reports $200,000 in net income. Jambon Company's investment in Fanth will increase Jambon net income by

Accepted Answer

A)   $20,000.
B)   $2,000.
C)   $8,000.
D)   $12,000.

Question 13

If a bond has a contract rate of 10% and is discounted at 10%, then the proceeds received at issuance will be

Accepted Answer

A)   equal to the face value of the bonds.
B)   greater than the face value of the bonds.
C)   less than the face value of the bonds.
D)   zero.

Question 14

Which of the following is not necessary to know in computing the future value of an annuity?

Accepted Answer

A)   Amount of the periodic payments
B)   Interest rate
C)   Number of compounding periods
D)   Year the payments begin

Question 15

Koppernaes Corporation earns 12% on an investment that will return $1,350,000, 7 years from now. Below is some of the time value of money information that Koppernaes has compiled that might help in planning compounded interest decisions. $\begin{array}{lr}
\text { Present value of } 1 \text { for } 7 \text { periods at } 12 \% & 0.45235 \
\text { Future value of } 1 \text { for } 7 \text { periods at } 12 \% & 2.21068 \
\text { Present value of an annuity of } 1 \text { for } 7 \text { periods at } 12 \% & 4.56376 \
\text { Future value of an annuity of } 1 \text { for } 7 \text { periods at } 12 \% & 10.08901
\end{array}$ To the closest dollar, what is the amount Koppernaes should invest now to earn this rate of return?

Accepted Answer

A)   $298,442
B)   $610,673
C)   $1,134,,000
D)   $616,107

Question 16

When the cost method is used to account for a stock investment the carrying value of the investment is affected by

Accepted Answer

A)   the earnings of the investee.
B)   the dividend distributions of the investee.
C)   the earnings and dividend distributions of the investee.
D)   neither the earnings nor the dividends of the investee.

Question 17

The ability of an investing company to affect the operating and financial activities of another company, even though the investor holds less than 50% of the stock, is known as

Accepted Answer

A)   significant influence.
B)   control.
C)   a combination.
D)   influence and control.

Question 18

Glover Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Glover expect to receive from the sale of these bonds?

Accepted Answer

A)   $2,768,338
B)   $3,000,000
C)   $3,243,315
D)   $3,231,660

Question 19

A purchase of common stock of Blue Wave Corporation for $14,500 was sold three months later for $15,000. The entry to record the sale would include a

Accepted Answer

A)   debit to Cash of $14,500.
B)   credit to Gain on Sale of Stock Investments of $500.
C)   credit to Stock Investments of $15,000.
D)   credit to Interest Revenue of $500.

Question 20

Which table has a factor of 1.00000 for 1 period at every interest rate?

Accepted Answer

A)   Future value of 1
B)   Future value of an annuity of 1
C)   Present value of 1
D)   Present value of an annuity of 1

Exam 14: Understanding Investments and Acquisitions in Accounting

If a stock investment is sold at a gain, the gain

Compound interest is the return on principal

When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table of the

In accounting for stock investments of less than 20%, the equity method is typically used.

When determining the proceeds received when issuing a bond, the factor applied to the amount of the bond principal is determined from the table of the

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on July 1, 2014, is

_______________ securities are bought and held primarily for sale in the near future.

Deutsche Corporation's trading portfolio at the end of the year is as follows: Deutsche subsequently sells Common Stock B for $17,000. What entry is made to record the sale?

Valente Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 10%, payable semiannually. The discount rate for such securities is 8%. How much can Valente expect to receive from the sale of these bonds?

Jambon Company owns 10% interest in the stock of Fanth Corporation. During the year, Fanth pays $8,000 in dividends to Jambon, and reports $200,000 in net income. Jambon Company's investment in Fanth will increase Jambon net income by

If a bond has a contract rate of 10% and is discounted at 10%, then the proceeds received at issuance will be

Which of the following is not necessary to know in computing the future value of an annuity?

When the cost method is used to account for a stock investment the carrying value of the investment is affected by

The ability of an investing company to affect the operating and financial activities of another company, even though the investor holds less than 50% of the stock, is known as

Glover Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Glover expect to receive from the sale of these bonds?

A purchase of common stock of Blue Wave Corporation for $14,500 was sold three months later for $15,000. The entry to record the sale would include a

Which table has a factor of 1.00000 for 1 period at every interest rate?