Question 1

Debt securities do not include U.S. government securities.

Accepted Answer

A) True 
 B)False

Question 2

Unrealized holding gains or losses on trading debt investments are reported in the ________.

Accepted Answer

A)   current assets section of the balance sheet
B)   operating expenses section of the income statement
C)   other income and (expenses)  section of the income statement
D)   accumulated other comprehensive income section of stockholders' equityE) B) and C)
F) A) and C)

Question 3

All State Services, Inc. acquired 100,000 shares of Omega Metals, Inc. on January 1, 2018. Omega pays a cash dividend of $0.25 per share on March 2, 2019. With the current investment, All State Services, Inc. holds 8% of Omega. In the journal entry on March 2, 2019, ________.

Accepted Answer

A)   Equity Investments is credited
B)   Dividend Revenue is credited
C)   Equity Investments is debited
D)   Cash Dividends is creditedE) A) and D)
F) A) and C)

Question 4

On the maturity date of a bond investment, the journal entry includes ________.

Accepted Answer

A)   a debit to Cash and a credit to Held-to-Maturity Debt Investments
B)   a debit to Long-term Investments and a credit to Cash
C)   a debit to the Interest Revenue and a credit to Cash
D)   recording a gain or loss on disposition at maturityE) C) and D)
F) B) and C)

Question 5

Land Services, Inc. owns 32% of voting stock of World Investments, Inc. During the year 2018, World Investments, Inc. earned profits of $320,000. Under the equity method, which of the following journal entries will Land Services record?

Accepted Answer

A)     Equity Investments-World Investments, Inc. 320,000 Cash 320,000\begin{array} { | l | r | r | } \hline 	ext { Equity Investments-World Investments, Inc. } & 320,000 & \\hline 	ext { Cash } & & 320,000 \\hline\end{array} Equity Investments-World Investments, Inc.  Cash ​320,000​320,000​​ 
B)     Cash 102,400 Dividend Revenue 102,400\begin{array} { | l | r | r | } \hline 	ext { Cash } & 102,400 & \\hline 	ext { Dividend Revenue } & & 102,400 \\hline\end{array} Cash  Dividend Revenue ​102,400​102,400​​ 
C)     Cash 102,400 Equity Investments - World Investments, Inc. 102,400\begin{array} { | l | r | l | } \hline 	ext { Cash } & 102,400 & \\hline 	ext { Equity Investments - World Investments, Inc. } & & 102,400 \\hline\end{array} Cash  Equity Investments - World Investments, Inc. ​102,400​102,400​​ 
D)     Equity Investments-World Investments, Inc. 102,400 Revenue from Investments 102,400\begin{array} { | l | l | l | } \hline 	ext { Equity Investments-World Investments, Inc. } & 102,400 & \\hline 	ext { Revenue from Investments } & & 102,400 \\hline\end{array} Equity Investments-World Investments, Inc.  Revenue from Investments ​102,400​102,400​​E) C) and D)
F) None of the above

Question 6

Under the equity method, dividend revenue is treated as ________.

Accepted Answer

A)   a debit to revenue from investments
B)   dividend revenue
C)   a return of capital
D)   a credit to current assetsE) B) and C)
F) None of the above

Question 7

On April 1, 2018, Morton Company invests $50,000 in Johnson Company stock. Johnson pays Morton a $2,000 dividend on November 30, 2018. Morton sells the Johnson stock on December 31, 2018 for $54,500. Assume the investment is categorized as a short-term equity investment and that Morton does not have significant influence over Johnson.
Requirements:
1. Journalize the transactions for Morton's investment in Johnson's stock.
2. What was the net effect of the investment on Morton's net income for the year ended December 31, 2018.

Accepted Answer

1.

2.
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Question 8

Investments in equity securities are classified into three specific types based on the investor's level of influence over the investee company.

Accepted Answer

A) True 
 B)False

Question 9

Short-term investments ________.

Accepted Answer

A)   are debt and equity securities that the investor expects to hold for more than a year
B)   are investments in debt securities or equity securities in which the investor holds less than 50 percent of the voting stock and that the investor plans to sell two years after the balance sheet date
C)   are investments in debt and equity securities that are readily marketable and that the investor intends to convert to cash within one year
D)   are investments in debt securities that the investor intends to hold until maturityE) A) and B)
F) A) and C)

Question 10

A ________ ownership in the investee's voting stock can significantly influence the investee's decisions.

Accepted Answer

A)   10 percent
B)   5 percent to 10 percent
C)   15 percent to 20 percent
D)   20 percent to 50 percentE) B) and D)
F) None of the above

Question 11

Littlefield Industries purchased a bond on September 1 of the current year for $200,000 and classified the investment as trading debt. The market value of the trading debt investment at year-end is $196,000. The adjustment is ________.

Accepted Answer

A)   reported as a separate component of stockholders' equity
B)   added to the Trading Debt Investments account
C)   not reported on the income statement because the bond has not been disposed of
D)   reported as a $4,000 unrealized holding loss in the Other Income and (Expenses)  section of the income statementE) A) and D)
F) A) and C)

Question 12

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Accepted Answer

A) True 
 B)False

Question 13

Greene Corporation pays $500,000 to acquire 40% of the voting stock of Universal Technologies, Inc. on May 5, 2019. This investment will be classified as a(n)  ________.

Accepted Answer

A)   trading equity investment
B)   available-for-sale equity investment
C)   significant influence equity investment
D)   held-to-maturity equity investmentE) A) and B)
F) None of the above

Question 14

For each of the following transactions related to Held-to-Maturity Debt securities, state the following:
(1) Which account(s) is (are) increased?
(2) Which account(s) is (are) decreased?
(3) What is the net effect on total assets and total equity? This net effect can be increase, decrease, or no net effect.
Transaction:
a. The investment was purchased at $50,000 (face value) plus brokerage fees of $2,000.
b. Semi-annual interest of $1,500 was received.
c. The investment was disposed of at maturity. Cash in the amount of $50,000 was received.

Accepted Answer

The answer of For each of the following transactions related...

Question 15

Held-to-maturity debt investments are normally reported at current market value.

Accepted Answer

A) True 
 B)False

Question 16

The fair value method is used to account for available-for-sale debt investments.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is the major difference between the accounting for equity securities and debt securities?

Accepted Answer

A)   Debt securities are classified as liabilities, while equity securities are classified as assets.
B)   Debt securities are classified as trading debt investments, while equity securities are classified as held-to-maturity equity investments.
C)   Debt securities earn interest revenue, while equity securities may earn dividend revenue.
D)   Debt securities of all types have a maturity date, while only a few equity securities have a maturity date.E) A) and D)
F) A) and B)

Question 18

The Loss on Disposal of Equity Investments is reported in the ________.

Accepted Answer

A)   other income and (expenses)  section of the income statement
B)   stockholders' equity section of the income statement
C)   stockholders' equity section of the balance sheet
D)   losses section of the statement of retained earningsE) A) and C)
F) A) and B)

Question 19

Consolidated statements combine the balance sheets, income statements, and statement of cash flows of the parent company with those of its controlling interest affiliates.

Accepted Answer

A) True 
 B)False

Question 20

Dynamic Software, Inc. invests excess cash of $100,000 in corporate bonds on March 30, 2019. The bonds mature 20 years from the date of purchase. Dynamic plans to hold the bonds until maturity and has the ability to do so. How does the March 30, 2019 transaction affect the accounting equation?

Accepted Answer

A)   liabilities will increase
B)   equity will decrease
C)   long-term assets will decrease
D)   total assets will remain unchangedE) B) and D)
F) None of the above

Exam 10: Investments

Consolidated statements combine the balance sheets, income statements, and statement of cash flows of the parent company with those of its controlling interest affiliates.

Correct Answer
verified

Investments in equity securities are classified into three specific types based on the investor's level of influence over the investee company.

Correct Answer
verified

All State Services, Inc. acquired 100,000 shares of Omega Metals, Inc. on January 1, 2018. Omega pays a cash dividend of $0.25 per share on March 2, 2019. With the current investment, All State Services, Inc. holds 8% of Omega. In the journal entry on March 2, 2019, ________.

Correct Answer
verified

Correct Answer
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The fair value method is used to account for available-for-sale debt investments.

Correct Answer
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Littlefield Industries purchased a bond on September 1 of the current year for $200,000 and classified the investment as trading debt. The market value of the trading debt investment at year-end is $196,000. The adjustment is ________.

Correct Answer
verified

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Correct Answer
verified

Land Services, Inc. owns 32% of voting stock of World Investments, Inc. During the year 2018, World Investments, Inc. earned profits of $320,000. Under the equity method, which of the following journal entries will Land Services record?

Correct Answer
verified

Unrealized holding gains or losses on trading debt investments are reported in the ________.

Correct Answer
verified

Debt securities do not include U.S. government securities.

Correct Answer
verified

A ________ ownership in the investee's voting stock can significantly influence the investee's decisions.

Correct Answer
verified

Dynamic Software, Inc. invests excess cash of $100,000 in corporate bonds on March 30, 2019. The bonds mature 20 years from the date of purchase. Dynamic plans to hold the bonds until maturity and has the ability to do so. How does the March 30, 2019 transaction affect the accounting equation?

Correct Answer
verified

Held-to-maturity debt investments are normally reported at current market value.

Correct Answer
verified

On the maturity date of a bond investment, the journal entry includes ________.

Correct Answer
verified

Greene Corporation pays $500,000 to acquire 40% of the voting stock of Universal Technologies, Inc. on May 5, 2019. This investment will be classified as a(n) ________.

Correct Answer
verified

Correct Answer
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2.
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View Answer

Short-term investments ________.

Correct Answer
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The Loss on Disposal of Equity Investments is reported in the ________.

Correct Answer
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Under the equity method, dividend revenue is treated as ________.

Correct Answer
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Which of the following is the major difference between the accounting for equity securities and debt securities?

Correct Answer
verified

Exam 10: Investments

Consolidated statements combine the balance sheets, income statements, and statement of cash flows of the parent company with those of its controlling interest affiliates.

Correct AnswerverifiedShow Answer

Investments in equity securities are classified into three specific types based on the investor's level of influence over the investee company.

Correct AnswerverifiedShow Answer

All State Services, Inc. acquired 100,000 shares of Omega Metals, Inc. on January 1, 2018. Omega pays a cash dividend of $0.25 per share on March 2, 2019. With the current investment, All State Services, Inc. holds 8% of Omega. In the journal entry on March 2, 2019, ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The fair value method is used to account for available-for-sale debt investments.

Correct AnswerverifiedShow Answer

Littlefield Industries purchased a bond on September 1 of the current year for $200,000 and classified the investment as trading debt. The market value of the trading debt investment at year-end is $196,000. The adjustment is ________.

Correct AnswerverifiedShow Answer

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Correct AnswerverifiedShow Answer

Land Services, Inc. owns 32% of voting stock of World Investments, Inc. During the year 2018, World Investments, Inc. earned profits of $320,000. Under the equity method, which of the following journal entries will Land Services record?

Correct AnswerverifiedShow Answer

Unrealized holding gains or losses on trading debt investments are reported in the ________.

Correct AnswerverifiedShow Answer

Debt securities do not include U.S. government securities.

Correct AnswerverifiedShow Answer

A ________ ownership in the investee's voting stock can significantly influence the investee's decisions.

Correct AnswerverifiedShow Answer

Dynamic Software, Inc. invests excess cash of $100,000 in corporate bonds on March 30, 2019. The bonds mature 20 years from the date of purchase. Dynamic plans to hold the bonds until maturity and has the ability to do so. How does the March 30, 2019 transaction affect the accounting equation?

Correct AnswerverifiedShow Answer

Held-to-maturity debt investments are normally reported at current market value.

Correct AnswerverifiedShow Answer

On the maturity date of a bond investment, the journal entry includes ________.

Correct AnswerverifiedShow Answer

Greene Corporation pays $500,000 to acquire 40% of the voting stock of Universal Technologies, Inc. on May 5, 2019. This investment will be classified as a(n) ________.

Correct AnswerverifiedShow Answer

Correct Answerverified 1. 2. \[\begin{array} { l r ...View AnswerShow Answer

Short-term investments ________.

Correct AnswerverifiedShow Answer

The Loss on Disposal of Equity Investments is reported in the ________.

Correct AnswerverifiedShow Answer

Under the equity method, dividend revenue is treated as ________.

Correct AnswerverifiedShow Answer

Which of the following is the major difference between the accounting for equity securities and debt securities?

Correct AnswerverifiedShow Answer

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