Question 1

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Potter's year-end, the stock had a fair value of $20,000. Potter should record a:
A)Credit to Unrealized Gain-Equity for $4,000.
B)Credit to Market Adjustment-Available-for-Sale for $4,000.
C)Credit to Investment Revenue for $4,000.
D)Debit to Unrealized Loss-Equity for $4,000.
E)Debit to Unrealized Gain-Equity for $4,000.

Accepted Answer

The answer of On July 31, Potter Co. purchased 2,000...

Question 2

Held-to-maturity securities are:
A)Always classified as Short-Term Investments.
B)Always classified as Long-Term Investments.
C)Debt securities that a company intends and is able to hold to maturity.
D)Equity securities that a company intends and is able to hold to maturity.
E)Equity securities where significant influence involved.

Accepted Answer

Held-to-maturity securities are debt securities that a company intends and is able to hold to maturity. They are reported at amortized cost on the balance sheet. They are neither classified as short-term nor long-term investments.

Question 3

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:
A)Debit to Dividends for $97,000.
B)Debit to Dividends for $38,800.
C)Debit to Long-Term investments for $97,000.
D)Credit to Long-Term Investments for $38,800.
E)Credit to Cash for $97,000.

Accepted Answer

The answer of Zhang Corp. owns 40% of Magnor Company's...

Question 4

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:
A)Debit to Dividend Revenue for $12,750.
B)Debit to Interest Revenue for $12,750.
C)Credit to Long-Term investments for $12,750.
D)Credit to Long-Term Investments for $25,000.
E)Credit to Dividend Revenue for $25,000.

Accepted Answer

The answer of Marjam Company owns 51,000 shares of MacKenzie...

Question 5

MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:
A)Debit to Long-Term Investments-AFC for $92,800.
B)Debit to Long-Term Investments-Shaw for $232,000.
C)Credit to Long-Term Investments for $92,800.
D)Debit to Long-Term Investments-HTM for $232,000.
E)Debit to Short-Term Investment for $232,000.

Accepted Answer

The entry to record the purchase of common stock includes a debit to Long-Term Investments-Shaw for the cost of the shares purchased, which is $232,000. This represents MotorCity's investment in Shaw. There is no information provided to suggest that the investment should be classified as Available-for-Sale, Held-to-Maturity or Short-Term, therefore options A, D, and E can be eliminated. Option C suggests a credit to Long-Term Investments, which would reduce the investment balance, and does not match the nature of the transaction.

Question 6

McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record this transaction should include a:
A)Debit to Dividends for $103,000.
B)Credit to Long-Term Investments for $41,200.
C)Debit to Dividend Revenue for $41,200.
D)Credit to Long-Term Investments for $103,000.
E)Credit to Cash for $41,200.

Accepted Answer

The answer of McVeigh Corp. owns 40% of Gondor Company's...

Question 7

All of the following are true for Available-for-sale equity securities except:
A)Are recorded at cost when acquired.
B)May earn dividends that are reported in that year's income statement.
C)May be classified as either short-term or long-term securities.
D)Are reported at market value on the balance sheet.
E)Are actively managed like Trading Securities.

Accepted Answer

The answer of All of the following are true for...

Question 8

Available-for-sale debt securities are:
A)Recorded at cost and remain at cost over the life of the investment.
B)Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
C)Reported at fair value on the balance sheet.
D)Intended to be held to maturity.
E)Always classified as Long-Term Investments.

Accepted Answer

Available-for-sale debt securities are reported at fair value on the balance sheet. The fair value is determined by market conditions and may fluctuate over time. This classification allows for the recognition of unrealized gains and losses in other comprehensive income until the security is sold or its value is permanently impaired.

Question 9

Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. The current fair value of the stock is $68,500. The year-end adjusting entry for this investment should include a:
A)Debit to Unrealized Loss-Equity for $1,500.
B)Credit to Unrealized Gain-Equity for $1,500.
C)Debit to Investment Revenue for $1,500.
D)No entry is required.
E)Credit to Investment Revenue for $1,500.

Accepted Answer

Since the current fair value of the stock is less than its purchase price, the investment has an unrealized loss. According to the available-for-sale securities accounting rules, unrealized gains and losses are recorded in a separate equity account called "Unrealized Gain/Loss-Equity." Therefore, the year-end adjusting entry should debit "Unrealized Loss-Equity" for the amount of the unrealized loss which is $1,500 ($70,000 - $68,500).

Question 10

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

Accepted Answer

An unrealized loss refers to a decrease in the fair value of a security that has not yet been realized through an actual sale of the security. It is also known as a paper loss, as it only exists on paper until the security is sold. The other options are either not applicable or do not accurately describe this type of loss.

Question 11

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:
A)$80,800.
B)$100,000.
C)$95,200.
D)$119,200.
E)$124,000.

Accepted Answer

The answer of Bharrat Corporation purchased 40% of Ferris Corporation...

Question 12

Investments in trading securities:
A)Include only equity securities.
B)Are reported as current assets.
C)Include only debt securities.
D)Are reported at their cost, no matter what their market value.
E)Are long-term investments.

Accepted Answer

Investments in trading securities are reported as current assets on the balance sheet as they are intended to be sold in the short-term.

Question 13

Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:
A)$77,000.
B)$125,000.
C)$173,000.
D)$197,000.
E)$370,000.

Accepted Answer

The answer of Madison Corporation purchased 40% of Jay Corporation...

Question 14

J.P. Industries purchased 2,000 shares of Yang's common stock for $143,000 as a long-term investment. The investment is classified as available-for-sale securities. The par value of the stock was $1 per share. J.P. paid $375 in commissions on the transaction. J.P.'s entry to record the purchase transaction would include a:
A)Credit to Common Stock for $2,000.
B)Credit to Common Stock for $143,000.
C)Credit to Common Stock for $143,375.
D)Debit to Long-Term Investments-AFS for $143,000.
E)Debit to Long-Term Investments-AFS for $143,375.

Accepted Answer

The answer of J.P. Industries purchased 2,000 shares of Yang's...

Question 15

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?
A)Equity method.
B)Fair value method.
C)Historical cost method.
D)Cost with amortization method.
E)Effective method.

Accepted Answer

If the investor owns more than 20% of the stock of another company and the investment is being held as a long-term investment, then the equity method would be used to account for the investment. This method requires the investor to recognize its share of the investee's earnings and losses on an ongoing basis, and to adjust the carrying value of the investment based on changes in the investee's financial position.

Question 16

Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:
A)Debit Cash, $9,000; credit Long-Term Investments, $9,000.
B)Debt Long-Term Investment, $9,000; credit Cash, $9000.
C)Debit Cash, $9,000; credit Interest Revenue, $9,000.
D)Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000.
E)Debit Cash, $9,000; credit Dividend Revenue, $9,000.

Accepted Answer

The answer of Pravis Corporation owns 30% of Kuster Corporation....

Question 17

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:
A)Available-for-sale securities.
B)Held-to-maturity securities.
C)Trading securities.
D)Realizable securities.
E)Liquid securities.

Accepted Answer

Short-term investments that are actively managed and traded for profit are classified as trading securities. Available-for-sale securities and held-to-maturity securities are not actively managed for profit, while realizable securities and liquid securities are not classifications of investments.

Question 18

Segmental Manufacturing owns 35% of Glesson Corp stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:
A)Credit to Long-Term Investments for $16,450.
B)Debit to Long-Term Investments for $16,450.
C)Debit to Cash for $47,000.
D)Credit to Cash for $16,450.
E)Credit to Investment Revenue for $47,000.

Accepted Answer

The answer of Segmental Manufacturing owns 35% of Glesson Corp...

Question 19

On March 15, Alan Company purchased 10,000 shares of Cameo Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $34,000. Alan should do which of the following?
A)Record a decrease to the Fair value Adjustment-AFS account.
B)Record an increase to the Unrealized Loss-Equity account.
C)Report a decrease in the Gain on Sale of Investment income statement account.
D)Report an increase in the asset section of the balance sheet.
E)Record an increase to the Unrealized Gain-Income account.

Accepted Answer

The answer of On March 15, Alan Company purchased 10,000...

Question 20

Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:
A)Debit to Long-Term Investments-AFS for $150,000.
B)Credit to Common Stock for $150,000.
C)Credit Gain on Long-Term Investment $146,000.
D)Debit to Long-Term Investments-AFS for $4,000.
E)Credit to Common Stock for $4,000.

Accepted Answer

The entry to record the purchase of available-for-sale securities includes a debit to Long-Term Investments-AFS for the cost of the investment, in this case $150,000. The other choices do not accurately reflect the proper accounting treatment for this transaction.

Quiz 15: Investments and International Operations

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Potter's year-end, the stock had a fair value of $20,000. Potter should record a:

Held-to-maturity securities are:

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record this transaction should include a:

All of the following are true for Available-for-sale equity securities except:

Available-for-sale debt securities are:

Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. The current fair value of the stock is $68,500. The year-end adjusting entry for this investment should include a:

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) :

Investments in trading securities:

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?

Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Segmental Manufacturing owns 35% of Glesson Corp stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:

On March 15, Alan Company purchased 10,000 shares of Cameo Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $34,000. Alan should do which of the following?