stepsophic
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1. In accounting for stock investments of less than 20% interest, revenue is recorded for the investor’s interest in the investee’s
A. Dividends
B. Net Income
C. Interest
D. Stock Appreciation
2. Changes from cost are reported as part of net income for
A. Available-for-sale securities
B. Held-to-maturity securities
C. Debt securities
D. Trading securities
3. If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss
A. Is not required since the share prices will likely rebound in the long run
B. Will show a debit to an expense account
C. Will show a credit to a contra-asset account that appears in the stockholders’ equity section of the balance sheet
D. Will show a debit to an unrealized loss account that is deducted in the stockholders’ equity section of the balance sheet.
4. At the time of acquisition of a debt investment
A. no journal entry is required
B. The cost principle applies
C. The stock investments account is debited when bonds are purchased
D. The investment account is credited for its cost plus brokerage fees
5. Corporations invest in other companies for all of the following reasons except to
A. House excess cash until needed
B. Generate earnings
C. Meet strategic goals
D. Increase trading of the other companies’ stock
6. Short-term investments are
A. (1)readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is sooner
B. (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer.
C. (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer.
D. (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter.
7. Available-for-sale securities are classified as
A. short-term investments only
B. long-term investments only
C. either short-term or long-term investments
D. Current assets only
8. When bonds are sold, the gain or loss on sale is the difference between the
A. Sales price and the cost of the bonds
B. Net proceeds and the cost of the bonds
C. Sales price and the market value of the bonds
D. Net proceeds and the market value of the bonds
9. If an investor owns less than 20% of the common stock of another corporation as a long-term investment,
A. the equity method of accounting for the investment should be employed
B. no dividends can be expected
C. it is presumed that the investor has relatively little influence on the investee.
D. It is presumed that the investor has significant influence on the investee
10. When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor
A. has insignificant influence on the investee and that the cost method should be used to account for the investment.
B. Should apply the cost method in accounting for the investment
C. Will prepare consolidated financial statements
D. has significant influence on the investee and that the equity method should be used to account for the investment.
A. Dividends
B. Net Income
C. Interest
D. Stock Appreciation
2. Changes from cost are reported as part of net income for
A. Available-for-sale securities
B. Held-to-maturity securities
C. Debt securities
D. Trading securities
3. If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss
A. Is not required since the share prices will likely rebound in the long run
B. Will show a debit to an expense account
C. Will show a credit to a contra-asset account that appears in the stockholders’ equity section of the balance sheet
D. Will show a debit to an unrealized loss account that is deducted in the stockholders’ equity section of the balance sheet.
4. At the time of acquisition of a debt investment
A. no journal entry is required
B. The cost principle applies
C. The stock investments account is debited when bonds are purchased
D. The investment account is credited for its cost plus brokerage fees
5. Corporations invest in other companies for all of the following reasons except to
A. House excess cash until needed
B. Generate earnings
C. Meet strategic goals
D. Increase trading of the other companies’ stock
6. Short-term investments are
A. (1)readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is sooner
B. (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer.
C. (1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer.
D. (1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter.
7. Available-for-sale securities are classified as
A. short-term investments only
B. long-term investments only
C. either short-term or long-term investments
D. Current assets only
8. When bonds are sold, the gain or loss on sale is the difference between the
A. Sales price and the cost of the bonds
B. Net proceeds and the cost of the bonds
C. Sales price and the market value of the bonds
D. Net proceeds and the market value of the bonds
9. If an investor owns less than 20% of the common stock of another corporation as a long-term investment,
A. the equity method of accounting for the investment should be employed
B. no dividends can be expected
C. it is presumed that the investor has relatively little influence on the investee.
D. It is presumed that the investor has significant influence on the investee
10. When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor
A. has insignificant influence on the investee and that the cost method should be used to account for the investment.
B. Should apply the cost method in accounting for the investment
C. Will prepare consolidated financial statements
D. has significant influence on the investee and that the equity method should be used to account for the investment.
