Acc557 Financial Accounting: Week 9 Study Guide (Chapter 12) - Version 1

Acc557 Financial Accounting
Week 9 Study Guide (Chapter 12) - Version 1

Multiple Choice Question 36
1. Corporations invest in other companies for all of the following reasons except to
generate earnings.
meet strategic goals.
increase trading of the other companies' stock.
house excess cash until needed.

Multiple Choice Question 144
2. On January 2, Dickson Corporation acquired 30% of the outstanding common stock of Crane Company for $550,000. For the year ended December 31, Crane reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. At December 31, the carrying value of Dickson's investment in Crane under the equity method is

Multiple Choice Question 47
3. The cost of debt investments includes each of the following except
accrued interest.
the price paid.
brokerage fees.

Multiple Choice Question 127
4. Benton Company has the following data at December 31, 2013 for its securities:
Securities Cost Fair Value
Trading $80,000 $82,000
Non-trading 94,000 91,000
On the financial statements, which of the following correctly explains the presentation of the related unrealized gain (loss) for these securities?
An unrealized loss of $3,000 will be reported on the income statement under other revenues and gain.
An netted unrealized loss of $1,000 will be reported on the income statement under other revenues and gain.
An unrealized gain of $2,000 will be reported on the balance sheet as part of stockholders’ equity.
An unrealized gain of $2,000 will be reported on the income statement under other revenues and gain.

Multiple Choice Question 80
5. Which of the following would not be considered a motive for making a stock investment in another corporation?
Appreciation in the market value of the stock investment
Use of the investment for expanding its own operations
Use of the investment to diversify its own operations
An increase in the amount of interest revenue from the stock investment

Multiple Choice Question 112
6. Which of the following would not be reported under "Other Revenues and Gains" on the income statement?
Unrealized gain on non-trading securities
Dividend revenue
Interest revenue
Gain on sale of short-term debt investments

Multiple Choice Question 130
7. Which one of the following would not be classified as a short-term investment?
Equity method investments
Short-term paper
Marketable debt securities
Marketable stock securities

Multiple Choice Question 124
8. On September 30, 2013, Fowler Corporation invested $800,000 in common stock of Mallard Industries as short-term non-trading securities. The market value of this investment was $830,000 at December 31, 2013, but had slipped to $825,000 by December 31, 2014. Assuming Fowler does not sell this investment and last adjusted the investment when preparing the financial statements on December 31, 2013, the adjustment necessary at December 31, 2014, includes a(an)
$825,000 debit to Fair Value Adjustment-Non-Trading
$5,000 debit to Stock Investments.
$5,000 debit to Unrealized Gain or Loss-Equity.
$25,000 credit to Unrealized Gain or Loss-Equity.

Multiple Choice Question 44
9. On January 1, 2013, Milton Company purchased at face value, a $1,000, 4% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end. The entry for the receipt of interest on January 1, 2014 is
Cash 20
Interest Receivable 20

Cash 20
Interest Revenue 20

Cash 40
Interest Revenue 40

Cash 40
Interest Receivable 40

Multiple Choice Question 109
10. Reporting investments at fair value is
applicable to stock securities only.
a conservative approach because only losses are recognized.
applicable to debt securities only.
applicable to both debt and stock securities.

Multiple Choice Question 95
11. On January 1, 2013, Dumar Industries acquired a 15% interest in Virginia Corporation through the purchase of 12,000 shares of Virginia Corporation common stock for $240,000. During 2013, Virginia Corp. paid $60,000 in dividends and reported a net loss of $90,000. Dumar is able to exert significant influence onVirginia. However, Dumar mistakenly records these transactions using the cost method rather than the equity method of accounting. Which of the following would show the correct presentation for Dumar's investment using the equity method?
Investment Net
Account Earnings (loss)
$ 90,000 ($30,000)
$226,500 ($4,500)
$217,500 ($13,500)
$226,500 ($13,500)

Multiple Choice Question 39
12. Pension funds and mutual funds regularly invest in debt and stock securities primarily to
house excess cash until needed.
generate earnings.
meet strategic goals.
control the company in which they invest.

Multiple Choice Question 128
13. All of the following statements about short-term investments are true except:
Short-term assets must be readily marketable.
Short-term investments are also called marketable securities.
Short-term investments are listed below accounts receivable in the current asset section of the balance sheet.
Trading securities are always classified as short-term investments.

Multiple Choice Question 46
14. Which of the following is not a true statement about the accounting for debt investments?
The cost includes any brokerage fees.
Debt investments include investments in government and corporation bonds.
The cost includes any accrued interest.
At acquisition, the cost principle applies.

Multiple Choice Question 106
15. In recognizing a decline in the fair value of short-term stock investments, an unrealized loss account is debited because
management cannot determine the exact amount of the loss in value.
management intends to realize this loss in the near future.
the stock market is volatile.
the securities have not been sold.
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