Question 1

Accounting for long-term investments in equity securities with controlling influence uses the:
A)Controlling method.
B)Equity method with consolidation.
C)Investor method.
D)Investment method.
E)Consolidated method.

Accepted Answer

The equity method with consolidation is used when an investor has significant influence over an investee, but not full control. This method requires that the investor records its share of the investee's net income or loss in its own financial statements, as well as making adjustments to the investee's balance sheet accounts. The consolidated financial statements reflect the combined financial position and results of the investor and the investee.

Question 2

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

Accepted Answer

Long-term investments are those that are not intended to be converted to cash in the short-term. This includes investments in stocks and bonds that are held for a long period of time, rather than being sold quickly for short-term gains. The key characteristic of long-term investments is that they are not meant for immediate liquidity, but are instead used to build wealth over time.

Question 3

A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:
A)$1,000.
B)$500.
C)$1,250.
D)$2,500.
E)$1,500.

Accepted Answer

The answer of A company purchased $60,000 of 5% bonds...

Question 4

At acquisition, debt securities are:
A)Recorded at their cost, plus total interest that will be received over the life of the security.
B)Recorded at the amount of interest that will be received over the life of the security.
C)Recorded at cost.
D)Not recorded, because no interest is due yet.
E)Recorded at cost plus the amount of dividend income to be received.

Accepted Answer

Debt securities are recorded at cost, which includes any fees or commissions paid for acquiring the security. The amount of interest that will be received over the life of the security is accounted for separately as interest income as it is earned. Dividend income is relevant for equity securities, not debt securities.

Question 5

At the end of the accounting period, the owners of debt securities:
A)Must report the dividend income accrued on the debt securities.
B)Must retire the debt.
C)Must record a gain or loss on the interest income earned.
D)Must record a gain or loss on the dividend income earned.
E)Must record any interest earned on the debt securities during the period.

Accepted Answer

At the end of the accounting period, the owners of debt securities must record any interest earned on the securities during the period. Dividend income is not relevant for debt securities as they do not pay dividends. Retirement of debt is an action that may occur but is not mandatory at the end of the accounting period. Gain or loss on interest income is not applicable as interest income is accrued over time and not subject to fluctuations.

Question 6

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

Accepted Answer

The company paid $37,800 plus a broker's fee of $525 for the bonds, which is a total cost of $38,325. As the company intends to hold the bonds until maturity, they are classified as "held-to-maturity" (HTM) investments. Therefore, the correct entry would be to debit Long-Term Investments-HTM for $38,325 and credit Cash for the same amount. Option A is incorrect because it doesn't include the broker's fee. Option C is incorrect because it only records the maturity value of the bond, not the actual cost paid. Option D and E are incorrect because they include an additional expense or loss, which is not necessary for this transaction.

Question 7

A controlling influence over the investee is based on the investor owning voting stock exceeding:
A)10%.
B)20%.
C)30%.
D)40%.
E)50%.

Accepted Answer

A controlling influence over the investee is achieved when the investor owns more than 50% of the voting stock. This means the investor has the power to control the investee's decision-making processes and operations.

Question 8

Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. The entry to record the receipt of these dividends is:
A)Debit Cash, $8,000; credit Long-Term Investments, $8,000.
B)Debt Long-Term Investment, $8,000; credit Cash, $8,000.
C)Debit Cash, $8,000; credit Dividend Revenue, $8,000.
D)Debit Unrealized Gain-Equity, $8,000; credit Cash, $8,000.
E)Debit Cash, $8,000; credit Unrealized Gain-Equity, $8,000.

Accepted Answer

Since Roe Corporation received cash dividends, it should debit Cash for $8,000. The cash received is considered dividend revenue for Roe Corporation and should be credited to Dividend Revenue for $8,000. There is no indication that this is a long-term investment, and therefore, choices A and B are incorrect. There is also no unrealized gain or loss involved, so choices D and E are incorrect.

Question 9

Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation. Strickland intends to actively manage this investment for profit. This investment is classified as:
A)an available-for-sale security.
B)a held-to-maturity security.
C)a trading security.
D)a significant influence security.
E)a controlling influence security.

Accepted Answer

The answer of Strickland Corporation has invested in 10% of...

Question 10

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

Accepted Answer

The answer of Kendall Corp. purchased at par value $160,000...

Question 11

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:
A)$37,800.
B)$38,325.
C)$40,000.
D)$40,525.
E)$43,200.

Accepted Answer

The company paid $37,800 plus a broker's fee of $525, which totals to $38,325 initially for the 8% bonds with a $40,000 maturity value. However, since the company intends to hold the bonds to maturity, the only cash proceeds they will receive when the bonds mature is the $40,000 maturity value. Therefore, the answer is C.

Question 12

Barnes Company holds $50,000 of 8% bonds that mature in six years as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?
A)debit Cash, $4,000; credit Long-Term Investments-HTM, $4,000.
B)debt Cash, $2,000; credit Long-Term Investments-HTM, $2000.
C)debit Cash, $2,000; credit Interest Revenue, $2,000.
D)debit Unrealized Gain-Equity, $2,000; credit Cash, $2,000.
E)debit Cash, $4,000; credit Unrealized Gain-Equity, $4,000.

Accepted Answer

The receipt of the semiannual interest payment is recorded by debiting Cash for the amount received, in this case $2,000, and crediting Interest Revenue for the same amount. Since the bonds are held-to-maturity, there is no unrealized gain or loss to be recorded, and Long-Term Investments-HTM is not affected by the receipt of interest payments. Therefore, the only correct option is C.

Question 13

A company has an investment in 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:
A)$750.
B)$1,500.
C)$2,250.
D)$4,500.
E)$9,000.

Accepted Answer

The interest payment is made on October 1 and April 1. Therefore, on December 31, three months of interest would have accrued (from October 1 to December 31). 
The annual interest rate is 9%, so for a $100,000 bond, the annual interest payment would be $9,000 ($100,000 x 9%). 
Dividing this by two gives the semi-annual payment of $4,500 ($9,000/2). 
Dividing by 6 gives the 3-month accrued interest of $2,250 ($4,500/6).

Question 14

Long-term investments are reported in the:
A)Current asset section of the balance sheet.
B)Intangible asset section of the balance sheet.
C)Non-current section of the balance sheet called long-term investments.
D)Plant assets section of the balance sheet.
E)Equity section of the balance sheet.

Accepted Answer

Long-term investments are classified as non-current assets and are reported in the non-current section of the balance sheet called long-term investments.

Question 15

Long-term investments cannot include:
A)Held-to-maturity debt securities.
B)Securities with maturity dates within one operating cycle.
C)Available-for-sale equity securities.
D)Equity securities giving an investor significant influence over an investee.
E)Available-for-sale debt securities.

Accepted Answer

Securities with maturity dates within one operating cycle are considered short-term investments, not long-term investments. The other options listed can all be considered long-term investments.

Question 16

The controlling investor is called the:
A)Owner.
B)Subsidiary.
C)Parent.
D)Investee.
E)Senior entity.

Accepted Answer

The controlling investor is referred to as the parent company, as it exercises control over the investee or subsidiary.

Question 17

The investee company in a long term investment with controlling interest is called the:
A)Owner.
B)Subsidiary.
C)Parent.
D)Creditor.
E)Senior entity.

Accepted Answer

The investee company in a long term investment with controlling interest is called a subsidiary. This means that the investing company holds more than 50% of the voting rights or shares in the investee company and has the power to control its operations and decision-making processes. Therefore, the correct choice is B)Subsidiary.

Question 18

All of the following statements regarding equity securities are true except:
A)Equity securities should be recorded at cost when acquired.
B)Equity securities are valued at fair value if classified as trading securities.
C)Equity securities are valued at fair value if classified as significant influence securities.
D)Equity securities are valued at fair value if classified as available-for-sale securities.
E)Equity securities classified as available-for-sale record the dividend revenue when received.

Accepted Answer

The answer of All of the following statements regarding equity...

Question 19

Kendall Corp. purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry:
A)debit Long-Term Investments-HTM, $75,000; credit Cash, $75,000.
B)debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.
C)debit Cash, $75,000; credit Long-Term Investments-HTM, $75,000.
D)debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000.
E)debit Cash, $75,000; credit Long-Term Investments-Trading, $75,000.

Accepted Answer

When the bonds mature, the journal entry to be prepared is to debit Cash with $75,000 and credit Long-Term Investments Held-to-Maturity with $75,000. This is because Kendall Corp. plans to hold the bonds until maturity and therefore they are classified as Held-to-Maturity investments. Unrealized gains and losses are not recognized for Held-to-Maturity investments. Choices A, B, D, and E are all incorrect options.

Question 20

All of the following are true about debt securities except:
A)They can be short-term investments.
B)They can be long-term investments.
C)They can have a cost higher than the maturity value.
D)They can have a cost lower than the maturity value.
E)The reflect an owner relationship.

Accepted Answer

Debt securities do not reflect an owner relationship. They represent a creditor relationship in which the investor lends money to the issuer and receives interest payments and the return of principal at maturity.

Quiz 15: Investments and International Operations

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

Long-term investments include:

A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:

At acquisition, debt securities are:

At the end of the accounting period, the owners of debt securities:

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:

A controlling influence over the investee is based on the investor owning voting stock exceeding:

Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. The entry to record the receipt of these dividends is:

Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation. Strickland intends to actively manage this investment for profit. This investment is classified as:

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:

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

Barnes Company holds $50,000 of 8% bonds that mature in six years as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

A company has an investment in 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

Long-term investments are reported in the:

Long-term investments cannot include:

The controlling investor is called the:

The investee company in a long term investment with controlling interest is called the:

All of the following statements regarding equity securities are true except:

Kendall Corp. purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry:

All of the following are true about debt securities except: