Question 1

The amount of interest involved in any financing transaction is based on two elements, principal and interest rate.

Accepted Answer

A) True 
 B)False

Question 2

The _____________________ of an annuity is the sum of all the payments plus the accumulated compound interest on them.

Accepted Answer

The answer of The _____________________ of an annuity is the...

Question 3

Parks Blair invested $5,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Parks decided to withdraw the accumulated amount of money. Parks has found the following values in various tables related to the time value of money. $\begin{array}{lr}
\text { Present value of } 1 \text { for } 15 \text { periods at } 8 \% & 0.31524 \
\text { Future value of } 1 \text { for } 15 \text { periods at } 8 \% & 3.17217 \
\text { Present value of an annuity of } 1 \text { for } 15 \text { periods at } 8 \% & 8.55948 \
\text { Future value of an annuity of } 1 \text { for } 15 \text { periods at } 8 \% & 27.15211
\end{array}$ Which factor would he use to compute the amount he would withdraw, assuming that the investment earns interest compounded annually?

Accepted Answer

A)  0.31524 
B)  3.17217 
C)  8.55948 
D)  27.15211

Question 4

Consolidated financial statements are useful to all of the following except

Accepted Answer

A)  creditors of subsidiary companies. 
B)  management of the parent company. 
C)  stockholders of the parent company. 
D)  board of directors of the parent company.

Question 5

Vangaurd Co. purchased 50, 6% McLaughlin Company bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the purchase would include debit to

Accepted Answer

A)  Debt Investments for $51,500. 
B)  Cash for $53,000. 
C)  Debt Investments for $50,000. 
D)  Stock Investments for $50,000.

Question 6

Baggles Company owns stock in Hampshire Industries, which it intends to hold indefinitely because of some negative tax consequences if sold. Which of the following statements is true regarding Jonathan's reporting of the stock?

Accepted Answer

A)  The stock would be classified as trading securities. 
B)  The stock would be classified as available-for-sale securities. 
C)  The stock requires no market adjustments since there are no plans to sell it. 
D)  Any losses on the stock are recorded in the income statement.

Question 7

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

Accepted Answer

A)  an addition to an asset of $5,000 and a realized gain of $5,000. 
B)  an addition to an asset of $5,000 and an unrealized gain of $5,000 in the stockholders' equity section. 
C)  an addition to an asset of $5,000 in the current assets section and an unrealized gain of $5,000 in "Other revenues and gains." 
D)  an addition to an asset of $5,000 in the current assets section and a realized gain of $5,000 in "Other revenues and gains."

Question 8

What are the reasons that corporations invest in securities?

Accepted Answer

The answer of What are the reasons that corporations invest...

Question 9

Giphons Corp. has common stock of $3,000,000, 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)  $4,690,000. 
B)  $4,800,000. 
C)  $4,740,000. 
D)  $4,630,000.

Question 10

Lewis Company earns 12% on an investment that will return $500,000 eleven years from now. What is the amount that Lewis Company should invest now to earn this rate of return?

Accepted Answer

The answer of Lewis Company earns 12% on an investment...

Question 11

The Fair Value Adjustment account is a(n)

Accepted Answer

A)  offset account. 
B)  adjustment account. 
C)  valuation allowance account. 
D)  opposite account.

Question 12

Porter Brothers Company purchased debt investment for $80,000 on January 1, 2014. On July 1, 2014, Jamison received cash interest of $2,905. Assuming no interest has been accrued, which of the following correctly presents the journals entries for the purchase and the receipt of interest?

Accepted Answer

The answer of Porter Brothers Company purchased debt investment for...

Question 13

The present value of $10,000 to be received in 5 years will be smaller if the discount rate is

Accepted Answer

A)  increased. 
B)  decreased. 
C)  not changed. 
D)  equal to the stated rate of interest.

Question 14

Suppose you have a winning lottery ticket and you are given the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 now. The sponsor of the prize uses a 5% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is

Accepted Answer

A)  $2,591,520. 
B)  $2,518,860. 
C)  $2,670,000. 
D)  $3,000,000.

Question 15

Le Tourneau Company had the following transactions pertaining to debt securities held as a I short - term investment.
Jan. 1  $\quad $Purchased 90, 6%, $1,000 Lido Company bonds for $90,000 cash. Interest is payable semiannually on July 1 and January 1.
July 1  $\quad $Received semiannual interest on Lido Company bonds.
Oct. 1  $\quad $Sold 45 Lido Company bonds for $46,400 plus accrued interest.
Instructions
(a) Journalize the transactions.
(b) Prepare the adjusting entry for the accrual of interest on December 31.

Accepted Answer

The answer of Le Tourneau Company had the following transactions...

Question 16

Which of the following accounting problems does not involve a present value calculation?

Accepted Answer

A)  The determination of the market price of a bond 
B)  The determination of the declining-balance depreciation expense 
C)  The determination of the amount to report for long-term notes payable 
D)  The determination of the amount to report for lease liability

Question 17

SCI Company deposits $15,000 in a fund at the end of each year for 7 years. The fund pays interest of 3% compounded annually. The balance in the fund at the end of 7 years is computed by multiplying

Accepted Answer

A)  $15,000 by the future value of 1 factor. 
B)  $75,000 by 1.07. 
C)  $75,000 by 1.70. 
D)  $15,000 by the future value of an annuity factor.

Question 18

The purchase of a company that is in the same industry and involved in the same activity is called a

Accepted Answer

A)  controlling acquisition. 
B)  horizontal acquisition. 
C)  parent acquisition. 
D)  vertical acquisition.

Question 19

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 20

The cost method of accounting for investments in stock should be employed when the

Accepted Answer

A)  investor owns more than 50% of the investee's stock. 
B)  investor has significant influence on the investee and the stock held by the investor are marketable equity securities. 
C)  market value of the shares held is greater than their historical cost. 
D)  investor's influence on the investee is insignificant.

Exam 14: Understanding Investments and Acquisitions in Accounting