Question 1

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. High Times Corporation is the:

Accepted Answer

High Times Corporation is an investor in Low Tide Company, as it owns a portion of Low Tide's common stock. Neither parent company nor controlling company fit the description given. Investee is not accurate because Low Tide is the company that is being invested in, not High Times Corporation.

Question 2

All investments not classified as held-to maturity or trading securities are:

Accepted Answer

The correct classification for investments that are not held-to-maturity or trading securities is available-for-sale investments. These investments are typically intended to be held for an indefinite period of time and their value may fluctuate over time. Examples include stocks, bonds, and mutual funds. Equity investments and debt investments are subcategories of available-for-sale investments, while short-term investments refer to investments with a maturity date of one year or less.

Question 3

If an investment is liquid and the investor intends to convert the investment to cash within one year, the investment will be classified as:

Accepted Answer

If the investor intends to convert the investment to cash within one year, it will be classified as short-term regardless of its liquidity. Long-term investments are held for a period exceeding one year. Equity is a type of investment that represents ownership in a company and can be either short-term or long-term depending on the investor's intention. Therefore, the best choice is C - short-term.

Question 4

Realized gains on the sale of available-for-sale securities are used to compute net income.

Accepted Answer

Realized gains from the sale of available-for-sale securities are included in net income as they represent actual profits from transactions completed during the period.

Question 5

The following is the proper order for assets on a balance sheet:

Accepted Answer

Cash is always listed first, followed by long-term investments, property, plant and equipment, and then intangibles. Therefore, option C is the correct order.

Question 6

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. High Times Corporation will show the investment on their books as:

Accepted Answer

High Times Corporation's ownership of 300 shares of Low Tide Company's common stock represents an asset for the corporation. This is because the investment gives the corporation an ownership interest in the company, which could provide benefits such as dividends, capital appreciation, or voting rights. Thus, the investment would be recorded as an asset on High Times Corporation's books.

Question 7

Available-for-sale investments in stock are reported on the balance sheet at:

Accepted Answer

Available-for-sale investments in stock are reported on the balance sheet at their current market value. This is because these investments are not held for trading purposes, but rather for potential long-term gains. Therefore, their value should be based on the current market conditions rather than their historical cost or the lower-of-cost-or-market value.

Question 8

The Allowance to Adjust Investment to Market has a credit balance. Therefore:

Accepted Answer

The Allowance to Adjust Investment to Market account is a contra-asset account with a credit balance, indicating that it reduces the value of the investment. Therefore, when adjusting the carrying amount of the investment to its market value, the Allowance account should be subtracted from the carrying amount.

Question 9

An investment in common stock acquired during the year at a cost of $45,000 has a market value at year end of $45,771. The adjusting entry requires a debit to Allowance to Adjust Investment to Market for $771.

Accepted Answer

The adjusting entry to adjust the investment to market value requires a debit to the Allowance to Adjust Investment to Market account for the difference between the cost and market value, which in this case is $771. Therefore, the statement is true.

Question 10

Unrealized gains and losses result from sales of the investments.

Accepted Answer

Unrealized gains and losses result from changes in the value of investments that have not been sold. When an investment is sold, the gain or loss becomes realized.

Question 11

The market value of an available-for-sale security has declined from the last carrying value. The journal entry to record this decline will include:

Accepted Answer

The decline in market value of an available-for-sale security is recorded by debiting the Unrealized Loss on Investment and crediting the Allowance to Adjust Investment to Market.

Question 12

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. Low Tide Company is the:

Accepted Answer

High Times Corporation is a shareholder with a minority interest in Low Tide Company. Therefore, Low Tide Company is the investee.

Question 13

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

Accepted Answer

The answer of The market value of an available-for-sale security...

Question 14

An investee should report available-for-sale securities that might be sold in the next 12 months as a long-term investment.

Accepted Answer

An available-for-sale security that might be sold in the next 12 months should be reported as a current asset and not as a long-term investment.

Question 15

The Allowance to Adjust Investment to Market is a companion account to Long-Term Investments.

Accepted Answer

The Allowance to Adjust Investment to Market is a contra account to Long-Term Investments, meaning it is a companion account that is used to reduce the balance of the Long-Term Investments account. This allowance is created because the market value of investments may fluctuate, and companies must adjust their books to reflect these changes in value.

Question 16

Unrealized gains and losses from available-for-sale investments arise from:

Accepted Answer

Unrealized gains and losses from available-for-sale investments are changes in the market value of the investment that have not yet been sold.

Question 17

The Allowance to Adjust Investment to Market is reported in the Long-Term Assets section of the balance sheet.

Accepted Answer

The Allowance to Adjust Investment to Market is a contra-asset account that is reported in the Long-Term Assets section of the balance sheet. It is used to adjust the value of certain long-term investments to their market value.

Question 18

Unrealized gains and losses on available-for-sale securities are used to compute net income.

Accepted Answer

Unrealized gains and losses on available-for-sale securities are not used to compute net income. They are reported in the other comprehensive income section of the statement of comprehensive income. Net income is computed by subtracting expenses from revenues.

Question 19

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

Accepted Answer

An increase in the market value of an available-for-sale security is recorded as an unrealized gain, which is credited to the Unrealized Gain on Investment account.

Question 20

Available-for-sale investments in stock are initially recorded at:

Accepted Answer

Available-for-sale investments in stock are initially recorded at their cost.

Quiz 10: Long-Term Investments International Operations

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. High Times Corporation is the:

All investments not classified as held-to maturity or trading securities are:

If an investment is liquid and the investor intends to convert the investment to cash within one year, the investment will be classified as:

Realized gains on the sale of available-for-sale securities are used to compute net income.

The following is the proper order for assets on a balance sheet:

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. High Times Corporation will show the investment on their books as:

Available-for-sale investments in stock are reported on the balance sheet at:

The Allowance to Adjust Investment to Market has a credit balance. Therefore:

An investment in common stock acquired during the year at a cost of $45,000 has a market value at year end of $45,771. The adjusting entry requires a debit to Allowance to Adjust Investment to Market for $771.

Unrealized gains and losses result from sales of the investments.

The market value of an available-for-sale security has declined from the last carrying value. The journal entry to record this decline will include:

High Times Corporation owns 300 shares of Low Tide Company's common stock. Low Tide has 1,000,000 shares of common stock outstanding. Low Tide Company is the:

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

An investee should report available-for-sale securities that might be sold in the next 12 months as a long-term investment.

The Allowance to Adjust Investment to Market is a companion account to Long-Term Investments.

Unrealized gains and losses from available-for-sale investments arise from:

The Allowance to Adjust Investment to Market is reported in the Long-Term Assets section of the balance sheet.

Unrealized gains and losses on available-for-sale securities are used to compute net income.

The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include:

Available-for-sale investments in stock are initially recorded at: