Question 1

Long-term investments are usually held as an investment of cash for use in current operations.

Accepted Answer

A) True 
 B)False

Question 2

When an investment in an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

Accepted Answer

A) True 
 B)False

Question 3

When using the equity method, receipt of cash dividends increases the carrying (book)value of an investment in equity securities.

Accepted Answer

A) True 
 B)False

Question 4

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:

Accepted Answer

A)  Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of the period.
B)  The entire portfolio of trading securities is reported at is fair value.
C)  An unrealized gain or loss is recorded with an adjusting entry when the securities are sold.
D)  An unrealized gain or loss from a change in fair value is reported on the income statement.
E)  An unrealized gain or loss is recorded with an adjusting entry at the end of each period.

Question 5

A controlling investor is called the parent, and the investee company is called the subsidiary.

Accepted Answer

A) True 
 B)False

Question 6

Land used in the company's operations is reported as a long-term investment.

Accepted Answer

A) True 
 B)False

Question 7

Accounting for long-term investments in equity securities with controlling influence uses the:

Accepted Answer

A)  Controlling method.
B)  Consolidated method.
C)  Equity method with consolidation.
D)  Investment method.
E)  Investor method.

Question 8

Explain the difference between short-term and long-term investments. Cite examples of each.

Accepted Answer

Short-term investments are securities ex...

Question 9

Kendall Corp. purchased at par value $160,000 of Barker Company's 7% bonds that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. The journal entry to record Kendall's purchase of the bonds is:

Accepted Answer

A)  debit Short-Term Investments-HTM $160,000; credit Cash, $160,000.
B)  debit Long-Term Investments-HTM $160,000; credit Cash $160,000.
C)  debit Cash, $160,000; credit Short-Term Investments-HTM $160,000.
D)  debit Cash, $169,333; credit, Short-Term Investments-HTM $169,333.
E)  debit Cash, $160,000; credit Long-Term Investments-HTM $160,000.

Question 10

Profit margin reflects the percent of net income in each dollar of net sales.

Accepted Answer

A) True 
 B)False

Question 11

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment. The company intends to hold the bonds to maturity. The correct entry to record the purchase of the bond investment is:

Accepted Answer

A)  Debit Long-Term Investments-HTM $38,325; credit Cash $38,325.
B)  Debit Long-Term Investments-HTM $37,800; credit Cash $37,800.
C)  Debit Long-Term Investments-HTM $37,800; debit Loss on Investment $525; credit Cash $38,325.
D)  Debit Long-Term Investments-HTM $37,800; debit Investment Expense $525; credit Cash $38,325.
E)  Debit Cash $40,000; credit Long-Term Investments-HTM $40,000.

Question 12

A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n) :

Accepted Answer

A)  Unrealized loss.
B)  Market loss.
C)  Contingent loss.
D)  Realizable loss.
E)  Capitalized loss.

Question 13

Short-term investments:

Accepted Answer

A)  Include funds earmarked for a special purpose such as bond sinking funds.
B)  Include bonds not intended to be converted into cash.
C)  Include stocks not intended to be converted into cash.
D)  Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash.
E)  Include sinking funds not intended to be converted into cash.

Question 14

Investments in trading securities are accounted for using the equity method with consolidation.

Accepted Answer

A) True 
 B)False

Question 15

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Accepted Answer

If an investing company owns more than 5...

Question 16

Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. The current fair value of the stock is $68,500. The company should record a:

Accepted Answer

A)  Credit to Unrealized Gain-Equity for $1,500.
B)  No entry is required.
C)  Credit to Investment Revenue for $1,500.
D)  Debit to Unrealized Loss-Equity for $1,500.
E)  Debit to Investment Revenue for $1,500.

Question 17

Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

Accepted Answer

A)  Debit Cash $300,000; credit Long-Term Investments-HTM $300,000.
B)  Debit Long-Term Investments-HTM $300,000; credit Cash $300,000.
C)  Debit Cash $300,000; credit Interest Receivable $300,000.
D)  Debit Cash $300,000; credit Bonds Payable $300,000.
E)  Debit Cash $300,000; credit Interest Revenue $300,000.

Question 18

When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

Accepted Answer

A) True 
 B)False

Question 19

Long-term investments include:

Accepted Answer

A)  Investments in marketable bonds that are intended to be converted into cash in the short-term.
B)  Investments intended to be converted to cash within one year.
C)  Investments in marketable stocks that are intended to be converted into cash in the short-term.
D)  Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term.
E)  Only investments readily convertible to cash.

Question 20

Foreign exchange rates fluctuate due to changes in all but which of the following?

Accepted Answer

A)  Expectations of future events.
B)  Supply and demand for currencies.
C)  Political conditions.
D)  Economic conditions.
E)  Whether the companies prepare financial statements under U.S. GAAP or IFRS.

Exam 15: Investments and International Operations

Long-term investments include:

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A controlling investor is called the parent, and the investee company is called the subsidiary.

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Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. The current fair value of the stock is $68,500. The company should record a:

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When using the equity method, receipt of cash dividends increases the carrying (book)value of an investment in equity securities.

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Foreign exchange rates fluctuate due to changes in all but which of the following?

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Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Correct AnswerverifiedIf an investing company owns more than 5...View AnswerShow Answer

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:

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Short-term investments:

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A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n) :

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Long-term investments are usually held as an investment of cash for use in current operations.

Correct AnswerverifiedShow Answer

Accounting for long-term investments in equity securities with controlling influence uses the:

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Investments in trading securities are accounted for using the equity method with consolidation.

Correct AnswerverifiedShow Answer

Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

Correct AnswerverifiedShow Answer

Profit margin reflects the percent of net income in each dollar of net sales.

Correct AnswerverifiedShow Answer

When an investment in an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

Correct AnswerverifiedShow Answer

Kendall Corp. purchased at par value $160,000 of Barker Company's 7% bonds that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. The journal entry to record Kendall's purchase of the bonds is:

Correct AnswerverifiedShow Answer

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment. The company intends to hold the bonds to maturity. The correct entry to record the purchase of the bond investment is:

Correct AnswerverifiedShow Answer

When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

Correct AnswerverifiedShow Answer

Land used in the company's operations is reported as a long-term investment.

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Explain the difference between short-term and long-term investments. Cite examples of each.

Correct AnswerverifiedShort-term investments are securities ex...View AnswerShow Answer

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If an investing company owns more than 5...
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Short-term investments are securities ex...
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