Question 1

On January 1, Belvedere Company purchased as an investment a $1,000, 7% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Accepted Answer

A)  
B)  
C)  
D)

Question 2

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 3

If you are able to earn a 6% rate of return, what amount would you need to invest to have $6,500 one year from now?

Accepted Answer

A)  $6,011.79 
B)  $6,132.10 
C)  $5,817.50 
D)  $6,190.47

Question 4

If a company acquires a 40% common stock interest in another company

Accepted Answer

A)  the equity method is usually applicable. 
B)  all influence is classified as controlling. 
C)  the cost method is usually applicable. 
D)  the ability to exert significant influence over the activities of the investee does not exist.

Question 5

Assume that Chapman's Inc.'s trading securities have a total cost of $185,000 and a total fair value of $215,000 at year end. The related adjusting entry would include a debit to

Accepted Answer

A)  Unrealized Gain for $30,000. 
B)  Fair Value Adjustment - Trading for $30,000. 
C)  No adjustment since only realized gains are recorded. 
D)  Fair Value Adjustment - Trading for $215,000.

Question 6

The company whose stock is owned by the parent company is called the

Accepted Answer

A)  controlled company. 
B)  subsidiary company. 
C)  investee company. 
D)  sibling company.

Question 7

Travis Tucker invests $10,655.04 now for a series of $1,500 annual returns beginning one year from now. Travis will earn 10% on the initial investment. How many annual payments will Travis receive?

Accepted Answer

A)  10 
B)  12 
C)  13 
D)  15

Question 8

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 9

In order to compute the present value of an annuity, it is necessary to know the
1) discount rate.
2) number of discount periods and the amount of the periodic payments or receipts.

Accepted Answer

A)  1. 
B)  2. 
C)  Both 1 and 2. 
D)  Something in addition to 1 and 2.

Question 10

King Corporation purchased 1,000 shares of Cable common stock ($50 par) at $73 per share as a short-term investment. The shares were subsequently sold at $77 per share. The cost of the securities purchased and gain or loss on the sale were

Accepted Answer

The answer of King Corporation purchased 1,000 shares of Cable...

Question 11

If $22,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

Accepted Answer

A)  $23,100 
B)  $231,000 
C)  $276,714 
D)  $303,600

Question 12

Which of the following is not a category used for valuing and reporting investments?

Accepted Answer

A)  Securities held for investing purposes. 
B)  Trading securities. 
C)  Held-to-maturity securities. 
D)  Available-for-sale securities.

Question 13

Chopper Company owns 10% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by

Accepted Answer

A)  $10,000. 
B)  $30,000. 
C)  $40,000. 
D)  $1,000.

Question 14

Why do pension and mutual funds invest in debt and equity securities?

Accepted Answer

A)  They have excess cash. 
B)  They want to generate earnings from investment income. 
C)  They invest for strategic reasons. 
D)  They invest for speculative reasons.

Question 15

The Fair Value Adjustment account is a balance sheet account. Identify the asset account it is related to. Explain how this account is increased and describe the procedure followed when its related asset account is disposed of.

Accepted Answer

The answer of The Fair Value Adjustment account is a...

Question 16

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, 2014, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1 and July 1. JBT Company has a calendar year end. The entry for the receipt of interest on July 1, 2014, is

Accepted Answer

A)  
B)  
C)  
D)

Question 18

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 19

All of the following factors would be signs of an investor's significant influence over an investee except

Accepted Answer

A)  the investor has representation on the investee's board of directors. 
B)  the investor participates in the investee's policy-making process. 
C)  there are immaterial transactions between the investor and the investee. 
D)  the common stock held by other stockholders is dispersed.

Question 20

Montz Company is considering investing in an annuity contract that will return $80,000 annually at the end of each year for 12 years. Montz has obtained the following values related to the time value of money to help in its planning process and compounded interest decisions.  To the closest dollar, what amount should Montz Company pay for this investment if it earns a 9% return?

Accepted Answer

A)  $994,132 
B)  $1,185,014 
C)  $1,611,258 
D)  $572,858

Exam 14: Time Value of Money

On January 1, Belvedere Company purchased as an investment a $1,000, 7% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

If you are able to earn a 6% rate of return, what amount would you need to invest to have $6,500 one year from now?

If a company acquires a 40% common stock interest in another company

Assume that Chapman's Inc.'s trading securities have a total cost of $185,000 and a total fair value of $215,000 at year end. The related adjusting entry would include a debit to

The company whose stock is owned by the parent company is called the

Travis Tucker invests $10,655.04 now for a series of $1,500 annual returns beginning one year from now. Travis will earn 10% on the initial investment. How many annual payments will Travis receive?

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

In order to compute the present value of an annuity, it is necessary to know the 1) discount rate. 2) number of discount periods and the amount of the periodic payments or receipts.

King Corporation purchased 1,000 shares of Cable common stock ($50 par) at $73 per share as a short-term investment. The shares were subsequently sold at $77 per share. The cost of the securities purchased and gain or loss on the sale were

If $22,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

Which of the following is not a category used for valuing and reporting investments?

Chopper Company owns 10% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by

Why do pension and mutual funds invest in debt and equity securities?

The Fair Value Adjustment account is a balance sheet account. Identify the asset account it is related to. Explain how this account is increased and describe the procedure followed when its related asset account is disposed of.

Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

On January 1, 2014, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1 and July 1. JBT Company has a calendar year end. The entry for the receipt of interest on July 1, 2014, is

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

All of the following factors would be signs of an investor's significant influence over an investee except