Question 1

The equity method generally should be used to account for an investment in stock when the level of ownership is

Accepted Answer

A) between 20 and 50 percent. 
B) 10 percent or more. 
C) less than 20 percent. 
D) between 10 and 40 percent.

Question 2

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

Accepted Answer

A) significant influence. 
B) control. 
C) minority interest. 
D) noninfluential control.

Question 3

The Allowance to Adjust Long-Term Investments to Market account appears in the assets section of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 4

On January 1,2014,Woodside Corporation purchased 5,000 shares of Nieman Corporation common stock for $120 per share.Woodside's investment represents 30 percent of the total outstanding shares of Nieman.During 2014,Nieman paid total dividends of $200,000.Woodside appropriately used the equity method to account for this investment and accordingly reported the investment at a carrying value of $780,000 on December 31,2014.Compute the amount of earnings reported by Nieman Corporation for 2014.

Accepted Answer

The answer of On January 1,2014,Woodside Corporation purchased 5,000 shares...

Question 5

A controlling investment is defined as ownership of more than 50 percent of the stock of another company.

Accepted Answer

A) True 
 B)False

Question 6

When a corporation owns more than 50 percent of the voting stock in another corporation,it usually should report its investment by using (the)

Accepted Answer

A) equity method. 
B) cost adjusted to market method. 
C) book value method. 
D) consolidated financial statements.

Question 7

With few exceptions,all subsidiaries in which the parent company owns a controlling interest (more than 50 percent)must be consolidated with the parent company for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 8

Available-for-sale debt securities are valued on the balance sheet at

Accepted Answer

A) cost,adjusted for the effects of interest. 
B) maturity value. 
C) fair value. 
D) original cost.

Question 9

Unless there is evidence to the contrary,an investor owning 35 percent of the stock of an investee is assumed to have significant influence.

Accepted Answer

A) True 
 B)False

Question 10

Held-to-maturity securities are valued on the balance sheet at

Accepted Answer

A) original cost. 
B) fair value. 
C) maturity value. 
D) cost adjusted for the effects of interest.

Question 11

Investments with a maturity of less than ninety days are generally classified as cash equivalents.

Accepted Answer

A) True 
 B)False

Question 12

All of the following are ways one corporation could affect the operating and financial policies of another corporation except

Accepted Answer

A) analysis of data regarding profitability. 
B) material transactions between the companies. 
C) representation on the board of directors. 
D) exchange of managerial personnel.

Question 13

The account Allowance to Adjust Short-Term Investments to Market appears as a contra-asset on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 14

A short-term investment in a U.S.Treasury bill costs $24,200 and will mature in six months at $25,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

Accepted Answer

A) Cash 25,000 Short-Term Investments 24,200
Interest Income 800 
B) Cash 25,000 Short-Term Investments 25,000 
C) Cash 24,200 Short-Term Investments 24,200 
D) Cash 25,000 Short-Term Investments 24,200
Gain on Sale of Investments 800

Question 15

The Allowance to Adjust Long-Term Investments to Market and the Unrealized Loss on Long-Term Investments are reciprocal accounts,each with the same dollar balance.

Accepted Answer

A) True 
 B)False

Question 16

An increase or decrease in the fair value of a company's total trading portfolio is included in net income in the period in which the increase or decrease occurs.

Accepted Answer

A) True 
 B)False

Question 17

When a company purchases debt securities,it records them at

Accepted Answer

A) cost,ignoring any commissions and fees 
B) cost plus commissions and fees 
C) cost less commissions and fees 
D) the value expected at maturity

Question 18

Barkely Corporation has invested in the stock of two other corporations,Hayes Corporation and Motz Corporation.Barkely does not own a controlling interest or exercise significant influence over either corporation.Barkely's accountant is preparing financial statements and has compiled the following information:  What should be the balance in the Allowance to Adjust Long-Term Investments to Market account,based on the above information?

Accepted Answer

A) $2,000 credit 
B) $4,000 debit 
C) $4,000 credit 
D) $2,000 debit

Question 19

Which of the following categories of investments can be both debt and equity securities?

Accepted Answer

A) Available-for-sale securities 
B) Trading securities 
C) Held-to-maturity securities 
D) Both available-for-sale and trading securities

Question 20

Stock categorized as trading securities is purchased for $52,000.At year end,when the market value of the stock is $61,000,the adjusting entry that would be recorded is:

Accepted Answer

A) Allowance to Adjust Short-Term Investments to Market 9,000 Unrealized Gain on Short-Term Investments 9,000 
B) Unrealized Loss on Short-Term Investments 9,000 Allowance to Adjust Short-Term Investments to Market 9,000 
C) Allowance to Adjust Short-Term Investments to Market 9,000 Short-Term Investments 9,000 
D) Realized Gain on Investments 9,000 Short-Term Investments 9,000

Exam 19: Accounting for Investments

The equity method generally should be used to account for an investment in stock when the level of ownership is

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

The Allowance to Adjust Long-Term Investments to Market account appears in the assets section of the balance sheet.

A controlling investment is defined as ownership of more than 50 percent of the stock of another company.

When a corporation owns more than 50 percent of the voting stock in another corporation,it usually should report its investment by using (the)

With few exceptions,all subsidiaries in which the parent company owns a controlling interest (more than 50 percent)must be consolidated with the parent company for financial reporting purposes.

Available-for-sale debt securities are valued on the balance sheet at

Unless there is evidence to the contrary,an investor owning 35 percent of the stock of an investee is assumed to have significant influence.

Held-to-maturity securities are valued on the balance sheet at

Investments with a maturity of less than ninety days are generally classified as cash equivalents.

All of the following are ways one corporation could affect the operating and financial policies of another corporation except

The account Allowance to Adjust Short-Term Investments to Market appears as a contra-asset on the balance sheet.

A short-term investment in a U.S.Treasury bill costs $24,200 and will mature in six months at $25,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

The Allowance to Adjust Long-Term Investments to Market and the Unrealized Loss on Long-Term Investments are reciprocal accounts,each with the same dollar balance.

An increase or decrease in the fair value of a company's total trading portfolio is included in net income in the period in which the increase or decrease occurs.

When a company purchases debt securities,it records them at

Which of the following categories of investments can be both debt and equity securities?

Stock categorized as trading securities is purchased for $52,000.At year end,when the market value of the stock is $61,000,the adjusting entry that would be recorded is: