Quiz Chapter 13- Acc557 - Wiley Plus

Corporations invest in other companies for all of the following reasons except to

 

 

 

increase trading of the other companies' stock.

 

 

 

generate earnings.

 

 

 

meet strategic goals.

 

 

 

house excess cash until needed.

 

 

A typical investment to house excess cash until needed is

 

 

 

low-risk, highly liquid securities.

 

 

 

stock securities.

 

 

 

stocks of companies in a related industry.

 

 

 

debt securities.

 

 

Pension funds and mutual funds regularly invest in debt and stock securities to

 

 

 

generate earnings.

 

 

 

meet strategic goals.

 

 

 

house excess cash until needed.

 

 

 

control the company in which they invest.

 

 

On January 1, 2008, Turner Company purchased at face value, a $1,000, 7% bond that pays interest on January 1 and July 1. Turner Company has a calendar year end.

 

 

 

The entry for the receipt of interest on July 1, 2008, is

 

 

 

 

d

 

 

 

b

 

 

 

a

 

 

c

 

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

 

 

 

credited for the cost of the bonds at the sale date.

 

 

 

credited for the fair value of the bonds at the sale date.

 

 

 

debited for the cost of the bonds at the sale date.

 

 

 

credited for the book value of the bonds at the sale date.

 

 

Steven Co. purchased 30, 6% Johnston Company bonds for $30,000 cash plus brokerage fees of $300. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

 

 

 

debit to Interest Revenue for $900.

 

 

 

credit to Interest Revenue for $909.

 

 

 

debit to Debt Investments for $900.

 

 

 

debit to Interest Receivable for $900.

 

 

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

 

 

 

it is presumed that the investor has relatively little influence on the investee.

 

 

 

no dividends can be expected.

 

 

 

it is presumed that the investor has significant influence on the investee.

 

 

 

the equity method of accounting for the investment should be employed.

 

 

If the equity method is being used, cash dividends received

 

 

 

are credited to the Stock Investments account.

 

 

 

require no entry because investee net income has already been recorded at the proper proportion on the investor's books.

 

 

 

are credited to Dividend Revenue.

 

 

 

are credited to the Revenue from Investment in Stock account.

 

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

 

 

 

the company whose stock is owned must be liquidated.

 

 

 

a parent-subsidiary relationship exists.

 

 

 

the cost method should be used to account for the investment.

 

 

 

a partnership exists.

 

The contra-account, Market Adjustment, is also called a(n)

 

 

 

valuation account.

 

 

 

opposite account.

 

 

 

offset account.

 

 

 

adjustment account.

 

The balance in the Unrealized Loss—Equity account will

 

 

 

appear as a deduction in the stockholders' equity section.

 

 

 

not be shown on the financial statements until the securities are sold.

 

 

 

appear on the income statement under Other Expenses and Losses.

 

 

 

appear on the balance sheet as a contra asset.

 

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

 

 

 

will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

 

 

 

is not required since the share prices will likely rebound in the long run.

 

 

 

will show a debit to an expense account.

 

 

 

will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet.

 

Which of the following is a major difference when accounting for long-term debt investments versus short-term debt investments?

 

 

 

When selling long-term investments, no gain or loss is recognized.

 

 

 

At the end of the year, any unrealized gain or loss on long-term debt investments must be recognized in the stockholders' equity section of the balance sheet.

 

 

 

For short-term investments, bond premium or discount is not amortized to interest revenue.

 

 

 

Interest revenue is not recognized for long-term investments.

 

 

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

 

 

 

consolidated financial statements.

 

 

 

the cost method.

 

 

 

the equity method.

 

 

 

the significant method

 

 

 

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

 

 

 

never-sell securities.

 

 

 

held-to-maturity securities.

 

 

 

trading securities.

 

 

 

available-for-sale securities.

 

 

Answers

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