Acc557 Financial Accounting: Week 9 Study Guide (Chapter 12) - Version 3

Important reminder: The questions listed in this tutorial might EITHER be in a different order with your current requirement or TOTALLY DIFFERENT version of questions altogether. Please always compare and review your current requirement (questions) with the tutorial questions!

Acc557 Financial Accounting
Week 9 Study Guide (Chapter 12) - Version 3

Multiple Choice Question 57
1. Eck Corporation sells 250 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Eck sold the shares for $40 a share. The entry to record the sale is
Cash 10,000
Gain on Sale of Stock Investments 3,750
Stock Investments 6,250

Stock Investments 10,000
Cash 10,000

Cash 10,000
Stock Investments 10,000

Cash 6,250
Loss on Sale of Stock Investments 3,750
Stock Investments 10,000

Multiple Choice Question 45
2. On January 1, Talent Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?
Cash 1,200
Debt Investments 1,200

Cash 1,220
Debt Investments 1,050
Gain on Sale of Debt Investments 150
Interest Revenue 20

Cash 1,220
Debt Investments 1,200
Interest Revenue 20

Cash 1,200
Debt Investments 1,050
Gain on Sale of Debt Investments 150

Multiple Choice Question 117
3. At the end of its first year, the trading securities portfolio consisted of the following common stocks.
Cost Fair Value
Atrium Corporation $ 46,400 $ 50,000
Barnes Inc. 60,000 55,800
Cantor Corporation 80,000 76,000
$186,400 $181,800

In the following year, the Barnes common stock is sold for cash proceeds of $56,000. The gain or loss to be recognized on the sale is a
loss of $4,000.
gain of $1,200.
gain of $200.
loss of $4,200.

Multiple Choice Question 40
4. At the time of acquisition of a debt investment,
the Stock Investments account is debited when bonds are purchased.
the Investment account is credited for its cost plus brokerage fees.
no journal entry is required.
the cost principle applies.

Multiple Choice Question 79
5. The account, Stock Investments, is
a general ledger control account.
another name for Debt Investments.
a subsidiary ledger account.
a long-term liability account.

Multiple Choice Question 59
6. Tan Company had these transactions pertaining to stock investments:
Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $48,800 cash plus brokerage fees of $1,400.
June 1 Received cash dividends of $2 per share on Norton stock.
Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.

The entry to record the purchase of the Norton stock would include a
credit to Cash for $48,800.
debit to Stock Investments for $48,800.
debit to Stock Investments for $50,200.
debit to Investment Expense for $1,400.

Multiple Choice Question 94
7. Mission Inc. earns $450,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.
How much revenue from investment should Cox report in 2013?

Multiple Choice Question 138
8. Which of the following reasons best explains why a company that experiences seasonal fluctuations in sales may purchase investments in debt or stock securities?
The company may have excess cash.
The company may invest for speculative reasons to increase the value in pension funds.
The company may generate a significant portion of its earnings from investment income.
The company may invest for the strategic reason of establishing a presence in a related industry.

Multiple Choice Question 115
9. The balance sheet presentation of an unrealized loss on a non-trading security is similar to the statement presentation of
treasury stock.
discount on bonds payable.
prepaid expenses.
allowance for doubtful accounts.

Multiple Choice Question 142
10. A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using
the significant method.
the equity method.
consolidated financial statements.
the cost method.

Multiple Choice Question 41
11. Which of the following is not a true statement regarding short-term debt investments?
Investments are frequently government or corporate bonds.
The securities usually pay interest.
This type of investment must be currently traded in the securities market.
Debt investments are recorded at the price paid less brokerage fees.

Multiple Choice Question 81
12. Revenue is recognized when cash dividends are received under
the cost method.
the equity method.
the controlling interest method.
both the cost and equity methods.

Multiple Choice Question 145
13. An unrealized loss on non-trading securities is
closed-out at the end of the accounting period.
deducted from the cost of the investment.
reported as a separate component of stockholders' equity.
reported under Other Expenses and Losses in the income statement.

Multiple Choice Question 93
14. Mission Inc. earns $600,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.
What amount should Cox show in the investment account at December 31, 2013 if the beginning of the year balance in the account was $40,000?

Multiple Choice Question 108
15. The contra-account, Fair value Adjustment, is also called a(n)
valuation account.
offset account.
opposite account.
adjustment account.

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