Finance Ch 13 Quiz Multiple Choice 2015

    Ch 13 QuizMultiple ChoiceIdentify the choice that best completes the statement or answers the question.____1.Investments in debt and equity securities that are held for current resale by banks and stockbrokerage firmsare termeda.available-for-sale securitiesb.trading securitiesc.held-to-maturity securitiesd.marketable securities____2.Which of the following categories of investments are reported at their fair values on the balance sheet andhave unrealized holding gains and losses included as a separate component of stockholders’ equity?a.held-to-maturity debt securitiesb.marketable securitiesc.available-for-sale securitiesd.trading securities____3.Which of the following securities are reported at their amortized cost on the balance sheet date?a.held-to-maturity debt securitiesb.marketable securitiesc.available-for-sale securitiesd.trading securities____4.With consolidation, control generally occurs when the investor owns what percentage of the voting stock ofthe investee?a.over 50%b.between 20% and 50%c.less than 20%d.over 40%____5.Which of the following methods of accounting for investments is appropriate when the investor has signifi-cant influence over the investee?a.equity methodb.consolidationc.cost methodd.lower of cost or market method____6.How is the premium or discount on held-to-maturity bond investments presented on the balance sheet?a.as a part of the cost of the investment and amortized over a period not to exceed five yearsb.as a part of the cost of the investment and amortized over the remaining life of the bondsc.in a separate account that is reported separately from the bonds and amortized over a pe-riod not to exceed five yearsd.in a separate account that is reported separately from the investment account and notamortized____7.On January 1, 2014, Macie Company purchased Jefferson Company’s 9% bonds with a face amount of$200,000 for $213,420 to yield 8%. The bonds mature on January 1, 2024, and Macie has both the intent andability to hold these bonds to maturity. The bonds pay interest annually on December 31. Assuming Macieuses the effective interest method of amortizing the bond premium; interest income reported on the December31, 2014, balance sheet would bea.$16,000b.$17,074c.$18,000d.$18,926____8.On October 1, 2014, the Sun Company acquired 9% bonds of Jack’s Company with a face value of $400,000for $412,000 plus accrued interest. Interest is payable on June 30 and December 31. How would Sun recordthe initial bond investment to be held-to-maturity?a.Investment in Held-to-Maturity Debt Securities 412,000Interest Income 9,360Cash 421,360b.Investment in Held-to-Maturity Debt Securities 412,000Interest Income 9,000Cash 421,000c.Investment in Held-to-Maturity Debt Securities 421,000Cash 421,000d.Investment in Held-to-Maturity Debt Securities 412,000Cash 412,000____9.On July 1, 2015, Jason Company purchased $60,000 of ten-year 6% bonds of Santo, Inc., for $51,850, to beheld-to-maturity. Interest is payable semiannually on June 30 and December 31. The effective yield on the in-vestment is 8%. What amount of interest income should Jason record for the six-month period ended Decem-ber 31, 2015?a.$2,063.04b.$2,084.96c.$2,074.00d.$2,400.00____10.On January 1, 2014, Old World Company purchased $300,000 of ten-year 10% bonds of New Company for$326,840. Interest is payable annually. The effective yield on the investment is 8%. What is the balance in OldWorld’s investment in held-to-maturity debt securities account (rounded to the nearest dollar, if necessary) atDecember 31, 2015?a.$330,693b.$326,840c.$322,987d.$318,826____11.On July 1, 2014, James Company purchased Timothy Company’s six-year 9% bonds with a face value of$200,000 for $196,000, which included $6,000 of accrued interest. The bonds, which mature on March 1,2020, are to be held-to-maturity and pay interest semiannually on March 1 and September 1. James uses thestraight-line method of amortization. The amount of income James should report for the calendar year 2014 asa result of this investment would bea.$8,823.52b.$9,882.36c.$9,529.40d.$8,117.64____12.The carrying value of held-to-maturity debt securities is thea.original purchase amountb.amortized costc.market valued.lower of amortized cost or market value____13.Unrealized holding gains and losses occur because a companya.actively trades securitiesb.holds securities until maturityc.holds securities through the end of the reporting periodd.records a change in fair value of the securities held even if they are not sold____14.Which of the following regarding trading securities is correct?a.Trading securities are reported at cost on the balance sheet date, and unrealized holdinggains and losses are included in income of the current period.b.Trading securities are reported at fair value on the balance sheet date, and unrealized hold-ing gains and losses are included in income of the current period.c.Trading securities are reported at fair value on the balance sheet date, but unrealized hold-ing gains and losses arenotincluded in income of the current period.d.Trading securities are reported at cost on the balance sheet date, but unrealized holdinggains and losses arenotincluded in income of the current period.____15.Unrealized gains and losses on investments in trading securities are reporteda.as a current assetb.on the income statementc.on the balance sheet as part of stockholders’ equityd.as a contra asset____16.The Reba Company purchased 10%, $800,000 bonds of the Trading Up Company at par plus accrued intereston April 1, 2014, as an investment in trading securities. The bonds pay interest on June 30 and December 31each year. The entry by Reba on April 1, 2014, would include aa.debit to Investment in Trading Securities of $820,000b.credit to Cash of $820,000c.credit to Interest Income of $20,000d.debit to Interest Expense of $20,000____17.In its first year of operations, Roger Company purchased trading securities at a total cost of $53,000. On De-cember 31, the end of Roger’s fiscal year, the fair market value of those investments totaled $57,000. As a re-sult of these investments, Roger Company will reporta.Investment in Trading Securities of $57,000b.Investment in Trading Securities of $53,000c.Unrealized Holding Gain/Loss-Trading Securities of $4,000 on the income statement asordinary incomed.a credit balance in the contra account to Investment in Trading Securities of $4,000____18.Chapin Company purchased investments in 2017 at a cost of $200,000 they recorded as trading securities.Their market values totaled $250,000 and $230,000 on December 31, 2017, and December 31, 2018, respec-tively. The entry required on December 31, 2018, would include aa.debit to Unrealized Holding Gain/Loss-Trading Securities of $20,000b.credit to Unrealized Holding Gain/Loss-Trading Securities of $20,000c.credit to Unrealized Holding Gain/Loss-Trading Securities of $30,000d.debit to Unrealized Holding Gain/Loss-Trading Securities of $30,000____19.The entry to record a sale of trading securities for $65,000 on January 3, 2018, that were purchased for$52,000 on November 21, 2017, and had a fair value on December 31, 2017, of $57,000 would include aa.credit to Unrealized Holding Gain/Loss-Trading Securities of $8,000b.debit to Unrealized Holding Gain/Loss-Trading Securities of $5,000c.debit to Investment in Trading Securities of $5,000d.credit to Gain on Sale of Trading Securities of $8,000____20.Which of the following regarding available-for-sale securities is correct?a.Available-for-sale securities are reported at cost on the balance sheet date, and unrealizedholding gains and losses are included in income of the current period.b.Available-for-sale securities are reported at fair value on the balance sheet date, and unre-alized holding gains and losses are included in income of the current period.c.Available-for-sale securities are reported at fair value on the balance sheet date, but unreal-ized holding gains and losses arenotincluded in income of the current period.d.Available-for-sale securities are reported at cost on the balance sheet date, but unrealizedholding gains and losses arenotincluded in income of the current period.____21.Realized gains and losses on investments available-for-sale are reporteda.as a current assetb.on the income statementc.on the balance sheet as part of stockholders’ equityd.as a contra asset____22.A realized gain or loss on the sale of an available-for-sale security is determined by comparinga.the carrying value of the security with the proceeds from the saleb.the original cost of the security with the proceeds from the salec.the market value at the latest balance sheet date with the proceeds from the saled.the original cost with the security’s carrying value____23.Wright Company has available-for-sale debt and equity securities that on December 31, 2014, had a cost of$110,000 and a market value of $108,000. The market value rose to $123,000 by December 31, 2015. Whataccounting action is required on December 31, 2015?a.Allowance for Change in Fair Value of Investments should be credited for $15,000.b.Unrealized Holding Gain/Loss-Available-for-Sale Securities should be debited for$13,000.c.Allowance for Change in Fair Value of Investments should be debited for $15,000.d.Unrealized Holding Gain/Loss-Available-for-Sale Securities should be credited for$13,000.____24.Reagan Company purchased 10,000 shares of Clinton’s Company at $45 per share plus $15,000 of DeltaCompany’s 12% bonds, acquired at par, as an available-for-sale securities. The bond pays interest on June 30and December 31 each year. What amount should be recorded to the Investment in Available-for-Sale Securi-ties account?a.$450,000b.$466,800c.$15,000d.$465,000____25.Chang Company purchased several investments in December 2015. Costs and market values of those invest-ments on December 31, 2015, are presented below:CostMarket ValueXYZ stock$200,000$180,000ABC stock400,000420,000DEF stock600,000540,000Assuming all of the securities are classified as available-for-sale, the journal entry required on December 31,2015, the end of Chang’s fiscal year, would include aa.debit to Unrealized Holding Gain/Loss-Available-for-Sale of $60,000b.credit to Unrealized Holding Gain/Loss-Available-for-Sale of $60,000c.credit to Unrealized Holding Gain/Loss-Available-for-Sale of $80,000d.debit to Investment in Available-for-Sale Securities of $60,000____26.On January 1, 2014, the Leaf Company acquired a 5% interest in the Trunk Corporation through the purchaseof 100,000 shares of Trunk’s common stock for $640,000; the investment is recorded on Leaf’s books asavailable-for-sale. During 2014, Trunk paid $40,000 in dividends and reported net income of $100,000. Themarket price of Trunk’s common stock was $6.20 per share on December 31, 2014. Leaf should report the in-vestment in the Trunk Corporation on its December 31, 2014, balance sheet ata.$620,000b.$627,000c.$640,000d.$645,000____27.A transfer of a security between categories is accounted for at thea.investment’s carrying valueb.fair valuec.original investment costd.lower of the original cost or fair value____28.Permanent value declines in available-for-sale securities should bea.recorded in the allowance accountb.included in income as a realized lossc.amortized over the remaining life of the securityd.recorded similarly to temporary declines in value____29.The Plutonium Company has a bond investment classified as held-to-maturity, which has a carrying value of$62,000 and a fair value of $24,000. The decline in value is considered as other than temporary. Plutoniumshould record the decline asa.Unrealized Loss on Value Decline 38,000Allowance for Change in FairValue of Investment 38,000b.Investment in Held-to-Maturity Securities 38,000Realized Loss on Decline in Value 38,000c.Realized Loss on Decline in Value 38,000Investment in Held-to-Maturity Securities 38,000d.Unrealized Loss on Value Decline 38,000Investment in Held-to-Maturity Securities 38,000____30.With the equity method, the investor recognizes its share of the earnings of the subsidiary when thea.investor sells the investmentb.investee pays a cash dividendc.investee declares a cash dividendd.investee reports earnings on its income statement____31.Under the equity method, dividends received by the investor should be recorded asa.a reduction in the carrying value of the investmentb.an addition to the carrying value of the investmentc.dividend incomed.investment income____32.Waldo Company owns 30% of Randy Company. During 2014, Randy reported earnings of $650,000 and paidcash dividends of $345,000. What effect would this have on Waldo’s investment account and net income?Investment AccountNet IncomeI.+$195,000+$103,500II.—+$103,500III.+$ 91,500+$103,500IV.+$ 91,500+$195,000a.Ib.IIc.IIId.IVExhibit 13-1On January 1, 2014, Oak Corporation paid $900,000 for 80,000 shares of Beech Company’s common stock,which represents 35% of Beech’s outstanding common stock. Beech reported income of $300,000 and paid acash dividend of $100,000 during 2014.____33.Refer to Exhibit 13-1. Oak should report income from the investment in Beech Company for 2014 ofa.$70,000b.$140,000c.$105,000d.$300,000____34.Refer to Exhibit 13-1. Oak should report the investment in Beech Company on its December 31, 2014, bal-ance sheet ata.$900,000b.$970,000c.$935,000d.$1,005,000____35.The Wise Company acquired an 20% interest in the outstanding common stock of the Smith Company. TheWise Company can exercise significant influence over the operating and financial policies of the Smith Com-pany. The Wise Company should account for its investment in the Smith Company by using thea.equity methodb.cost methodc.securities held-to-maturity methodd.lower of cost or market method____36.The Master Company acquired a 40% interest in the Dickerson Company on January 2, 2014, for $1,000,000.During 2014, Dickerson Company paid $100,000 in dividends and reported net income of $270,000. At theend of 2014, the balance in Investment in Dickerson Company should bea.$1,000,000b.$1,068,000c.$1,040,000d.$1,108,000____37.David, Inc. used the equity method of accounting for its investment in Russell Company. At December 31,2014, the investment balance was $4,500 after all adjustments were recorded. The following is additional in-formation:David’s share of Russells’ 2014 net income$2,300David’s share of 2014 depreciation of Russell equipment100David’s dividends received from Russell in 2014700What was the January 1, 2014 balance in Investment in Russell Company?a.$3,800b.$3,000c.$2,900d.$2,300____38.Which type of investment in securities must always be classified as a current asset?a.held-to-maturity debt securitiesb.available-for-sale securitiesc.trading securitiesd.none of the these, they may all be classified as current or long-term assets____39.Warren, Inc. purchased a $400,000 life insurance policy on the company president on January 1, 2017. Thepremium that was paid on January 1 amounted to $11,600. In the first year, cash surrender value increased by$900 and dividends received by Warren from the insurance company for the year amounted to $300. Whatwas Warren’s insurance expense for 2017?a.$10,400b.$11,000c.$12,500d.$12,800____40.The cash surrender value of the insurance policy on the corporation’s president would be presented on the bal-ance sheet asa.cashb.marketable securitiesc.long-term investmentd.prepaid expense____41.The journal entry to recognize the impairment of a note receivable includes aa.debit to Bad Debt Expenseb.credit to Notes Receivablec.credit to Interest Expensed.debit to Interest Income____42.A note receivable is considered impaired whena.the debtor misses an interest or principal paymentb.it is probable that the creditor will be unable to collect all amounts duec.the market value of the note is less than its book valued.the market value of interest exceeds the original contract interest rate

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