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Exam 12: Investments

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Question 61

Multiple Choice

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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.

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Question 62

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Under the equity method, the Stock Investments account is increased when the

A) investee company reports net income.
B) investee company pays a dividend.
C) investee company reports a loss.
D) stock investment is sold at a gain.

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Question 63

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On January 1, Skills Company purchased as a short-term investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1. The bond is sold on July 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? a. Cash. $\quad$$\quad$ 1,200 $\quad$ Debt Investments $\quad$$\quad$ 1,200 b. Cash $\quad$$\quad$ 1,230 $\quad$ Debt Investments $\quad$$\quad$ 1,000 $\quad$ Gain on Sale of Debt Investments $\quad$$\quad$ 200 $\quad$ Interest Revenue $\quad$$\quad$ 30 c. Cash $\quad$$\quad$ 1,230 $\quad$ Debt Investments $\quad$$\quad$ 1,200 $\quad$ Interest Revenue $\quad$$\quad$ 30 d. Cash $\quad$$\quad$ 1,200 $\quad$ Debt Investments $\quad$$\quad$ 1,000 $\quad$ Gain on Sale of Debt Investments $\quad$$\quad$ 200

Revenue is recognized when cash dividends are received under

In recognizing a decline in the fair value of short-term stock investments, an unrealized loss account is debited because

Available-for-sale securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

The balance in the Unrealized Gain or Loss-Equity account will

If one company owns more than 50% of the common stock of another company,

Which of the following are accounted for at amortized cost under IFRS?

Viejo Inc. earns $600,000 and pays cash dividends of $150,000 during 2014. Cruz Corporation owns 73,500 of the 210,000 outstanding shares of Viejo. What amount should Cruz show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $40,000?

If a short-term debt investment is sold, the Investment account is

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year, Lyte pays $20,000 in dividends to Mize, and reports $300,000 in net income. Mize Company's investment in Lyte will increase Mize $\prime$ s net income by

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.

Which one of the following would not be classified as a short-term investment?

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1. The journal entry at December 31, 2014 would include a credit to

All of the following statements about short-term investments are true except:

Debt investments are investments in government and corporation bonds.

On January 1, 2014, Gene Corp. paid $800,000 for 100,000 shares of Onofine Company's common stock, which represents 30% of Onofine $\prime$ s outstanding common stock. Onofine reported net income of $200,000 and paid cash dividends of $60,000 during 2014. Gene should report the investment in Onofine Company on its December 31, 2014, balance sheet at:

Which of the following investment classifications are the same for GAAP and IFRS?