Question 1

Changes in fair value of securities are reported in the income statement for which type of securities?

Accepted Answer

D

Question 2

When an investor uses the equity method to account for investments in common stock,the investment account will be increased when the investor recognizes

Accepted Answer

According to the equity method, the investor recognizes a proportionate share of the net income of the investee as an increase in the investment account. This is because the investor owns a percentage of the investee's earnings and is entitled to a percentage of the profits.

Question 3

Which category includes only debt securities?

Accepted Answer

Held-to-maturity securities are debt securities that are held by the company until maturity, therefore they only include debt securities. Available-for-sale securities and trading securities can include both debt and equity securities, while marketable equity securities only include equity securities.

Question 4

For which type of investments would unrealized increases and decreases be recorded directly in an owners' equity account?

Accepted Answer

Unrealized increases and decreases in the value of available-for-sale securities are recorded directly in an owners' equity account, specifically in other comprehensive income, until they are sold or otherwise disposed of.

Question 5

Changes in fair value of securities are reported in the stockholders' equity section of the balance sheet for which type of securities?

Accepted Answer

Changes in fair value of available-for-sale securities are reported in the stockholders' equity section of the balance sheet through the accumulated other comprehensive income (AOCI) account. Marketable equity securities and trading securities are reported on the balance sheet at fair value with changes in fair value affecting the income statement instead. Held-to-maturity securities are reported on the balance sheet at amortized cost and therefore changes in fair value are not recorded.

Question 6

A debit balance in the account Market Adjustment--Available-for-Sale Securities at the end of a year should be interpreted as the net

Accepted Answer

A debit balance in the Market Adjustment--Available-for-Sale Securities account means that the fair value of the company's available-for-sale securities has decreased below their cost. This represents an unrealized loss, which is the difference between the cost of the securities and their current fair value. However, it is important to note that the debit balance only represents the unrealized holding gain to date, not the realized holding gain. The realized holding gain would only occur if the company sells the securities for a higher price than their original cost.

Question 7

If the combined market value of trading securities at the end of the year is less than the market value of the same portfolio of trading securities at the beginning of the year,the difference should be accounted for by

Accepted Answer

The difference between the market value of the trading securities at the end of the year and the beginning of the year should be reported as an unrealized loss in the income statement. This is because trading securities are held for the purpose of generating profit through short-term price fluctuations, and any changes in the value of the securities are recognized in the income statement. Option A is incorrect because a credit to Investment in Trading Securities would increase the value of the investment account, which is opposite to what is required in this situation. Option B is incorrect because reporting an unrealized loss in the stockholders' equity section of the balance sheet would not reflect the impact on earnings. Option C is incorrect because a footnote alone is not sufficient to recognize the impact on earnings.

Question 8

At the beginning of the year a company had a debit balance in the account Market Adjustment--Trading Securities.During the year the company did not buy or sell any trading securities,but at the end of the year the related market adjustment account had a credit balance.This change indicates that

Accepted Answer

The answer of At the beginning of the year a...

Question 9

Under the cost method of accounting for unconsolidated investments in common stock,goodwill amortization

Accepted Answer

Goodwill amortization is not recorded under the cost method of accounting for unconsolidated investments in common stock. The cost method only recognizes dividends received and any changes in the fair value of the investment.

Question 10

The equity method of accounting for an investment in the common stock of another company should be used when the investment

Accepted Answer

The equity method of accounting is used when the investor has the ability to exercise significant influence over the investee, typically demonstrated by ownership of between 20% and 50% of the voting common stock. This method recognizes the investor's proportionate share of the investee's earnings or losses on the investor's income statement. The other answer choices are not relevant to the application of the equity method.

Question 11

When an investor uses the equity method to account for investments in common stock,cash dividends received by the investor from the investee should be recorded as

Accepted Answer

Under the equity method, the investor records its share of the investee's profits and losses, and any dividends received are deducted from the investment account. This is because dividends received are a distribution of earnings from the investee and do not affect the investor's proportional ownership in the investee.

Question 12

If the combined market value of available-for-sale securities at the end of the year is less than the market value of the same portfolio of available-for-sale securities at the beginning of the year,the difference should be accounted for by

Accepted Answer

Unrealized losses on available-for-sale securities are reported in the stockholders' equity section of the balance sheet, not on the income statement, to reflect the decrease in value of the securities that has not yet been realized through sale.

Question 13

Which of the following is true?

Accepted Answer

The answer of Which of the following is true?
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Question 14

The only significant difference between the provisions of international accounting standards as promulgated by IAS 39 and U.S.accounting standards under FASB ASC Topic 860 (Transfers and Servicing is

Accepted Answer

IAS 39 and ASC 860 differ significantly in how they treat unrealized gains and losses on securities valued at fair value, with IAS 39 allowing these to be reported in net income, whereas ASC 860 does not necessarily follow this approach.

Question 15

From the following,select the most appropriate basis for the valuation of a new investment when properties or services are exchanged for stock.

Accepted Answer

The fair market value of the stock received is the most appropriate basis for valuation as it reflects the actual market value of the stock at the time of the exchange. Par or stated value may not accurately reflect the actual value of the stock, and book value of the property or services exchanged may not be a relevant basis for valuation in the context of a stock exchange. Option D may be applicable if the fair market value of the stock is not clearly determinable.

Question 16

A credit balance in the account Market Adjustment--Trading Securities at the end of a year should be interpreted as the net

Accepted Answer

A credit balance in the Market Adjustment--Trading Securities account represents an unrealized holding loss to date. It means that the fair value of the securities has decreased since they were acquired by the company, but the securities have not been sold yet. The credit balance in the account represents the cumulative amount of the unrealized holding loss.

Question 17

Consolidated financial statements are typically prepared when one company has

Accepted Answer

Consolidated financial statements are prepared when a company has a controlling financial interest in another company. This means that the controlling company owns more than 50% of the voting stock of the other company, giving it the power to control the financial and operating policies of the subsidiary. Consolidated financial statements combine the financial results of both companies as if they were a single entity.

Question 18

FASB Statement No.115 generally applies when the level of ownership of another company is at what percentage?

Accepted Answer

FASB Statement No.115 applies to investments in debt and equity securities categorized as available-for-sale, held-to-maturity, or trading securities, regardless of the level of ownership. Therefore, the percentage of ownership is not a determining factor for its applicability.

Question 19

When an investor uses the cost method to account for investments in common stock,cash dividends received by the investor from the investee should normally be recorded as

Accepted Answer

When using the cost method, cash dividends received by the investor from the investee should be recorded as dividend revenue. This is because the investor is not recognizing their share of the investee's profit; instead, they are simply receiving a distribution of earnings. Dividend revenue would increase the investor's income statement and would not affect the investment account.

Question 20

Which securities are purchased with the intent of selling them in the near future?

Accepted Answer

Trading securities are purchased with the intent of selling them in the near future, usually within a few days, weeks or months. Marketable equity securities and available-for-sale securities can also be sold in the short term, but they are not specifically purchased with that intention. Held-to-maturity securities are securities that the company intends to hold until maturity, meaning they are not purchased with the intention of selling in the near future.

Quiz 14: Investments in Debt and Equity Securities