Question 1

Assets are listed on the balance sheet from the smallest dollar amount to the largest dollar amount.

Accepted Answer

A) True 
 B)False

Question 2

An investment in common stock acquired during the year at a cost of $50,000 has a market value at year end of $50,290. The adjusting entry requires a credit to Allowance to Adjust Investment to Market for $290.

Accepted Answer

A) True 
 B)False

Question 3

Under the equity method, if the Investment is sold at a gain, the gain is:

Accepted Answer

A)  reported as operating revenue. 
B)  reported on the balance sheet as a long-term asset. 
C)  reported in the Other Revenue section of the income statement. 
D)  contributes to gross profit on the income statement.

Question 4

Receiving a stock dividend from an available-for-sale investment requires the following journal entry:

Accepted Answer

A)  a debit to Cash and a credit to Dividend Revenue. 
B)  a debit to Cash and a credit to Unrealized Gain on Investments. 
C)  a debit to Unrealized Gain on Investment and a credit to Dividend Revenue. 
D)  no journal entry. Investor makes a memorandum entry in the accounting records.

Question 5

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

Accepted Answer

A)  the equity 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

A noncontrolling (minority) interest arises when:

Accepted Answer

A)  a parent company excludes the subsidiary company from the consolidated financial statements. 
B)  a parent company owns less than 100% of the stock of a subsidiary. 
C)  a subsidiary company is not included in the consolidated financial statements. 
D)  a subsidiary company represents less than 20% of the value of the consolidated company.

Question 7

Present value is the value now of a given amount to be paid or received in the future, assuming compound interest.

Accepted Answer

A) True 
 B)False

Question 8

Bonds of publicly traded companies are traded similarly to stocks.

Accepted Answer

A) True 
 B)False

Question 9

Long-term investments are listed on the balance sheet after current assets and property, plant, and equipment.

Accepted Answer

A) True 
 B)False

Question 10

The future value of a single amount is the value at a future date of a given amount invested now.

Accepted Answer

A) True 
 B)False

Question 11

The purchases of available-for-sale investments would appear on a statement of cash flows in:

Accepted Answer

A)  the financing activities section. 
B)  the operating activities section. 
C)  the investing activities section. 
D)  none of the above. The purchase would not appear on a statement of cash flows.

Question 12

On the balance sheet, Available-for-sale investments in stock are reported at:

Accepted Answer

A)  their cost. 
B)  the lower-of-cost-or-market. 
C)  their amortized cost. 
D)  their current market value.

Question 13

Under the equity method of accounting for long-term investments in common stock, when a cash dividend is received from the investee company:

Accepted Answer

A)  the investor's Investment account is increased. 
B)  the Dividend Revenue account is increased. 
C)  the investor's Investment account is decreased. 
D)  no entry is necessary.

Question 14

The principal is the amount borrowed or invested.

Accepted Answer

A) True 
 B)False

Question 15

The available-for-sale method (market value method) of accounting for long-term investments in stock should be used when the:

Accepted Answer

A)  investor owns more than 50% of the investee's stock. 
B)  investor has significant influence over the investee's operating decisions and policies. 
C)  investor has little or no influence on the investee. 
D)  investor is a parent company.

Question 16

On January 1, 2012, Berger Corporation paid $800,000 to purchase 40% of the outstanding stock of Oakley Company. Oakley Company reported net income of $200,000 for the year ending December 31, 2012 and paid cash dividends of $60,000 during 2012. On January 1, 2013, Berger Corporation sells its entire investment in Oakley Company for $1,100,000. Berger Corporation will report a(n):

Accepted Answer

A)  realized gain on the sale of $300,000. 
B)  unrealized gain on the sale of $300,000. 
C)  realized gain on the sale of $244,000. 
D)  unrealized gain on the sale of $244,000.

Question 17

The sale of common stock is shown on the statement of cash flows as:

Accepted Answer

A)  financing activities. 
B)  operating activities. 
C)  investing activities. 
D)  none of the above. They are not shown on the statement of cash flows.

Question 18

If the equity method is used to account for stock investments, the investor company decreases the investment account when it receives a cash dividend from the investee company.

Accepted Answer

A) True 
 B)False

Question 19

If bonds are issued at a premium, the carrying amount of the bonds will be greater than the face value of the bonds until it reaches the maturity date.

Accepted Answer

A) True 
 B)False

Question 20

An increase in foreign currency value relative to the U.S. dollar between the date of purchase and date of payment will create an exchange gain.

Accepted Answer

A) True 
 B)False

Exam 8: Long-Term Investments the Time Value of Money

Assets are listed on the balance sheet from the smallest dollar amount to the largest dollar amount.

An investment in common stock acquired during the year at a cost of $50,000 has a market value at year end of $50,290. The adjusting entry requires a credit to Allowance to Adjust Investment to Market for $290.

Under the equity method, if the Investment is sold at a gain, the gain is:

Receiving a stock dividend from an available-for-sale investment requires the following journal entry:

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

A noncontrolling (minority) interest arises when:

Present value is the value now of a given amount to be paid or received in the future, assuming compound interest.

Bonds of publicly traded companies are traded similarly to stocks.

Long-term investments are listed on the balance sheet after current assets and property, plant, and equipment.

The future value of a single amount is the value at a future date of a given amount invested now.

The purchases of available-for-sale investments would appear on a statement of cash flows in:

On the balance sheet, Available-for-sale investments in stock are reported at:

Under the equity method of accounting for long-term investments in common stock, when a cash dividend is received from the investee company:

The principal is the amount borrowed or invested.

The available-for-sale method (market value method) of accounting for long-term investments in stock should be used when the:

The sale of common stock is shown on the statement of cash flows as:

If the equity method is used to account for stock investments, the investor company decreases the investment account when it receives a cash dividend from the investee company.

If bonds are issued at a premium, the carrying amount of the bonds will be greater than the face value of the bonds until it reaches the maturity date.

An increase in foreign currency value relative to the U.S. dollar between the date of purchase and date of payment will create an exchange gain.