Question 1

Match between columns
                        Premises: Debt Securities
Business Combination
Equity Method
Available-for-sale Securities
Equity Securities
Investee
Held-to-maturity Securities
Investor
Trading Securities
Cost Method

Accepted Answer

The Answer of Debt investments that a company intends to is...

Question 2

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Accepted Answer

A) True 
 B)False

Question 3

Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

Accepted Answer

A) True 
 B)False

Question 4

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Accepted Answer

A) True 
 B)False

Question 5

Long-term investments are held for all of the listed reasons below except

Accepted Answer

A)   to earn the interest or dividend income
B)   for its long-term gain potential
C)   to influence over another business entity
D)   to meet current cash needsE) None of the above
F) B) and D)

Question 6

Trading securities are reported on the balance sheet at cost.

Accepted Answer

A) True 
 B)False

Question 7

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Accepted Answer

When companies temporarily have excess c...

Question 8

Held-to-Maturity securities

Accepted Answer

A)   are reported at their fair market value on the balance sheet date
B)   include both stocks and bonds
C)   are primarily purchased to earn interest revenue
D)   all of the aboveE) A) and B)
F) None of the above

Question 9

Which of the following would be considered an "Other Comprehensive Income" item?

Accepted Answer

A)   net income.
B)   extraordinary loss related to flood.
C)   gain on disposal of discontinued operations.
D)   unrealized loss on available-for-sale securities.E) None of the above
F) B) and D)

Question 10

The equity method is usually more appropriate for accounting for investments where the purchaser does have significant influence over the investee.

Accepted Answer

A) True 
 B)False

Question 11

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Accepted Answer

A)   $400
B)   $406
C)   $2,000
D)   $2,400E) C) and D)
F) A) and D)

Question 12

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Accepted Answer

A) True 
 B)False

Question 13

The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

Accepted Answer

A) True 
 B)False

Question 14

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Accepted Answer

A)   a debit to Cash for $242,500
B)   a credit to Loss on Sale for $7,500
C)   a credit to Gain on Sale for $7,500
D)   a debit to Cash for $244,300E) B) and D)
F) B) and C)

Question 15

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on June 30, 2014, will include:

Accepted Answer

A)   a credit to Interest Revenue for $2,400.
B)   a debit to Cash for $3,600.
C)   a credit to Cash for $2,400.
D)   a credit to Interest Receivable for $1,200.E) A) and C)
F) A) and B)

Question 16

Held to maturity securities

Accepted Answer

A)   are reported at fair market value
B)   include stocks as well as bonds
C)   may be reported as current or noncurrent assets
D)   all of the aboveE) C) and D)
F) All of the above

Question 17

Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

Accepted Answer

A)   a loss of $2,000 on the income statement and available-for-sale securities of $13,000 on the balance sheet
B)   no loss on the income statement and available-for-sale securities of $13,000 on the balance sheet
C)   no loss on the income statement, available-for-sale securities of $11,000 and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet
D)   a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheetE) None of the above
F) B) and C)

Question 18

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Accepted Answer

A) True 
 B)False

Question 19

In order to maintain the original value of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Accepted Answer

A) True 
 B)False

Question 20

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Accepted Answer

A) True 
 B)False

Exam 15: Investments and Fair Value Accounting

Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

Correct Answer
verified

Match each of the following investment terms with the appropriate definition below.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Correct Answer
verified

In order to maintain the original value of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Correct Answer
verified

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Correct Answer
verified

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Correct Answer
verified

Which of the following would be considered an "Other Comprehensive Income" item?

Correct Answer
verified

The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

Correct Answer
verified

Correct Answer
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Held-to-Maturity securities

Correct Answer
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Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Correct Answer
verified

Held to maturity securities

Correct Answer
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Trading securities are reported on the balance sheet at cost.

Correct Answer
verified

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Correct Answer
verified

Long-term investments are held for all of the listed reasons below except

Correct Answer
verified

Correct Answer
verified

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Correct Answer
verified
When companies temporarily have excess c...
View Answer

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Correct Answer
verified

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Correct Answer
verified

The equity method is usually more appropriate for accounting for investments where the purchaser does have significant influence over the investee.

Correct Answer
verified

Exam 15: Investments and Fair Value Accounting

Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

Correct AnswerverifiedShow Answer

Match each of the following investment terms with the appropriate definition below.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Correct AnswerverifiedShow Answer

In order to maintain the original value of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

Correct AnswerverifiedShow Answer

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Correct AnswerverifiedShow Answer

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Correct AnswerverifiedShow Answer

Which of the following would be considered an "Other Comprehensive Income" item?

Correct AnswerverifiedShow Answer

The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Held-to-Maturity securities

Correct AnswerverifiedShow Answer

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Correct AnswerverifiedShow Answer

Held to maturity securities

Correct AnswerverifiedShow Answer

Trading securities are reported on the balance sheet at cost.

Correct AnswerverifiedShow Answer

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Correct AnswerverifiedShow Answer

Long-term investments are held for all of the listed reasons below except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Correct AnswerverifiedWhen companies temporarily have excess c...View AnswerShow Answer

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Correct AnswerverifiedShow Answer

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Correct AnswerverifiedShow Answer

The equity method is usually more appropriate for accounting for investments where the purchaser does have significant influence over the investee.

Correct AnswerverifiedShow Answer

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When companies temporarily have excess c...
View Answer

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