Question 1

For accounting purposes, the method used to account for long-term investments in common stock is determined by

Accepted Answer

A)   the amount paid for the stock by the investor.
B)   the extent of an investor's influence on the operating and financial affairs of the investee.
C)   whether the stock has paid dividends in past years.
D)   whether the acquisition of the stock by the investor was "friendly" or "hostile."

Question 2

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

Accepted Answer

A) True 
 B)False

Question 3

In accounting for debt investments, entries are made for each of the following except the

Accepted Answer

A)   acquisition.
B)   interest revenue.
C)   amortization of any discount or premium.
D)   sale.

Question 4

Which one of the following would not be classified as a short-term investment?

Accepted Answer

A)   Marketable stock securities
B)   Equity method investments
C)   Marketable debt securities
D)   Short-term paper

Question 5

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

Accepted Answer

A)   the Dividend Revenue account is credited.
B)   the Stock Investments account is increased.
C)   the Stock Investments account is decreased.
D)   no entry is necessary.

Question 6

If a short-term debt investment is sold, the Investment account is

Accepted Answer

A)   credited for the book value of the bonds at the sale date.
B)   credited for the cost of the bonds at the sale date.
C)   credited for the fair value of the bonds at the sale date.
D)   debited for the cost of the bonds at the sale date.

Question 7

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

Accepted Answer

The answer of Which of the following is the correct...

Question 8

At December 31, 2010, the trading securities for Mayfair, Inc. are as follows:  Mayfair should report the following amount related to the securities in its 2010 income statement:

Accepted Answer

A)   $2,000 gain
B)   $12,000 realized loss.
C)   $12,000 unrealized loss.
D)   $14,000 unrealized loss.

Question 9

Debt investments are investments in government and corporation bonds.

Accepted Answer

A) True 
 B)False

Question 10

The following transactions were made by Waite Company. Assume all investments are short-term and are readily marketable.  
Instructions
Journalize the transactions.

Accepted Answer

The answer of The following transactions were made by Waite...

Question 11

On January 1, 2010, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end.
The entry for the receipt of interest on July 1, 2010, is

Accepted Answer

The answer of On January 1, 2010, Milton Company purchased...

Question 12

Which of the following would not be classified as a short-term investment?

Accepted Answer

A)   Short-term commercial paper
B)   Idle cash in a bank checking account
C)   Marketable stock securities
D)   Marketable debt securities

Question 13

If a common stock investment is sold at a gain, the gain

Accepted Answer

A)   is reported as operating revenue.
B)   is reported under a special section, "Discontinued investments," on the income statement.
C)   is reported in the Other Revenue and Gain section of the income statement.
D)   contributes to gross profit on the income statement.

Question 14

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has _______________ influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _______________ method.

Accepted Answer

The answer of When an investor owns between 20% and...

Question 15

If a parent company has two wholly owned subsidiaries, how many legal and economic entities are there from the viewpoint of the shareholders of the parent company?

Accepted Answer

The answer of If a parent company has two wholly...

Question 16

An unrealized loss on trading securities is reported under Other ____________________ on the income statement.

Accepted Answer

The answer of An unrealized loss on trading securities is...

Question 17

Short-term investments are securities that are _____________ and ______________ to be converted into cash within the next year.

Accepted Answer

readily ma...

Question 18

When recording bond interest, Interest Receivable is reported as a fixed asset in the balance sheet.

Accepted Answer

A) True 
 B)False

Question 19

Available-for-sale securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

Accepted Answer

A) True 
 B)False

Question 20

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

Accepted Answer

A)   year.
B)   two years.
C)   year or operating cycle, whichever is shorter.
D)   year or operating cycle, whichever is longer.

Exam 16: Investments

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

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When recording bond interest, Interest Receivable is reported as a fixed asset in the balance sheet.

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Which one of the following would not be classified as a short-term investment?

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If a short-term debt investment is sold, the Investment account is

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Debt investments are investments in government and corporation bonds.

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If a common stock investment is sold at a gain, the gain

Correct AnswerverifiedShow Answer

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has _______________ influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _______________ method.

Correct AnswerverifiedShow Answer

At December 31, 2010, the trading securities for Mayfair, Inc. are as follows: Mayfair should report the following amount related to the securities in its 2010 income statement:

Correct AnswerverifiedShow Answer

For accounting purposes, the method used to account for long-term investments in common stock is determined by

Correct AnswerverifiedShow Answer

The following transactions were made by Waite Company. Assume all investments are short-term and are readily marketable. Instructions Journalize the transactions.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An unrealized loss on trading securities is reported under Other ____________________ on the income statement.

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On January 1, 2010, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end. The entry for the receipt of interest on July 1, 2010, is

Correct AnswerverifiedShow Answer

If a parent company has two wholly owned subsidiaries, how many legal and economic entities are there from the viewpoint of the shareholders of the parent company?

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Available-for-sale securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

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If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

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Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

Correct AnswerverifiedShow Answer

In accounting for debt investments, entries are made for each of the following except the

Correct AnswerverifiedShow Answer

Which of the following would not be classified as a short-term investment?

Correct AnswerverifiedShow Answer

Short-term investments are securities that are _____________ and ______________ to be converted into cash within the next year.

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When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has _ influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _ method.

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Short-term investments are securities that are _ and __ to be converted into cash within the next year.

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