Question 1

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 2

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Accepted Answer

A) True 
 B)False

Question 3

Outer Banks Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $40 a share. Outer Banks sold the shares for $43 a share. The entry to record the sale is

Accepted Answer

A)  
B)  
C)  
D)

Question 4

The process of determining the present value is referred to as discounting the future amount.

Accepted Answer

A) True 
 B)False

Question 5

Under the equity method, the Stock Investments account is increased when the

Accepted Answer

A)  investee company reports net income. 
B)  investee company pays a dividend. 
C)  investee company reports a loss. 
D)  stock investment is sold at a gain.

Question 6

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

Accepted Answer

A) True 
 B)False

Question 7

On January 1, 2014, Tri-State Supply Company purchased at face value, a $1,000 7%, bond that pays interest annually on January 1. Tri-State Company has a calendar year end. The adjusting entry on December 31, 2014, is

Accepted Answer

A)  not required. 
B)   
C)   
D)

Question 8

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase by

Accepted Answer

A)  $52,000. 
B)  $60,000. 
C)  $8,000. 
D)  $40,000.

Question 9

Ultra Cosmetics acquired 10% of the 200,000 shares of common stock of Kardashian Fashion at a total cost of $14 per share on March 18, 2014. On June 30 Kardashian declared and paid a $96,000 dividend. On December 31 Kardashian reported net income of $244,000 for the year. At December 31 the market price of Kardashian Fashion was $16 per share. The stock is classified as available-for-sale.
Instructions
Prepare all the necessary entries for 2014 for Ultra Cosmetics.

Accepted Answer

The answer of Ultra Cosmetics acquired 10% of the 200,000...

Question 10

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

Accepted Answer

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

Question 11

Stocks traded on the New York Stock Exchange are considered readily marketable.

Accepted Answer

A) True 
 B)False

Question 12

Potter Company has purchased a patent that requires annual payments of $31,250 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the patent?

Accepted Answer

A)  $187,500 
B)  $128,482 
C)  $172,679 
D)  $120,469

Question 13

At the time of acquisition of a debt investment

Accepted Answer

A)  no journal entry is required. 
B)  the historical cost principle applies. 
C)  the Stock Investments account is debited when bonds are purchased. 
D)  the investment account is credited for its cost plus brokerage fees.

Question 14

Mazzeo Company acquires 80 Dodd's 10%, 5 year, $1,000 bonds on January 1, 2014 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 15

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Accepted Answer

A)  Unrealized gain on available-for-sale securities. 
B)  Dividend revenue. 
C)  Interest revenue. 
D)  Gain on sale of debt investments.

Exam 14: Time Value of Money

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?

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

Outer Banks Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $40 a share. Outer Banks sold the shares for $43 a share. The entry to record the sale is

The process of determining the present value is referred to as discounting the future amount.

Under the equity method, the Stock Investments account is increased when the

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

On January 1, 2014, Tri-State Supply Company purchased at face value, a $1,000 7%, bond that pays interest annually on January 1. Tri-State Company has a calendar year end. The adjusting entry on December 31, 2014, is

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase by

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

Stocks traded on the New York Stock Exchange are considered readily marketable.

Potter Company has purchased a patent that requires annual payments of $31,250 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the patent?

At the time of acquisition of a debt investment

Mazzeo Company acquires 80 Dodd's 10%, 5 year, $1,000 bonds on January 1, 2014 for $80,000. The journal entry to record this investment includes a debit to

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?