Deck 10: Investments

Question 1

An equity security represents a credit relationship with another company or governmental entity.

Answer 1

False

Question 2

Which of the following is true of securities?

A)They are commonly traded on an exchange.
B)They are assets traded between companies working in the same industry.
C)They are intangible assets traded in the stock exchange.
D)They don't represent any ownership interests.

Answer 2

A

Question 3

A preferred stock is an example of a debt security.

Answer 3

False

Question 4

Which of the following is true of debt securities?

A)Debt securities entitle the holder to receipt of a share of profit in the form of dividends.
B)Debt securities typically pay interest for a fixed period.
C)Debt securities include preferred stocks.
D)Debt securities represent ownership interests of the investors.

Question 5

An equity security does not represent an ownership interest in a corporation,although it pays dividends.

Question 6

A security is a share or interest representing financial value.

Question 7

A security is a ________.

A)regulation dealing with the transactions of investments
B)system aimed at protecting the interests of the market participants
C)share or interest representing financial value
D)process related to the valuation of a financial instrument

Question 8

A(n)________ is represented by a certificate and is commonly traded on an exchange.

A)inventory
B)intangible asset
C)interest
D)security

Question 9

The owner of a bond or stock of a corporation is referred to as the investor.

Question 10

Long-term investments are also known as marketable securities.

Question 11

Debt securities do not include U.S.government securities.

Question 12

Equity securities are represented by a certificate,such as a stock certificate,and are commonly traded in the stock market.

Question 13

Which of the following is an example of a security?

A)dividends
B)municipal bond
C)interest expense
D)depreciation

Question 14

A debt security ________.

A)represents a credit relationship with another company or governmental entity,and typically pays interest for a fixed period
B)represents stock ownership in another company and sometimes pays dividends
C)is a standardized contract between two parties to buy or sell an underlying security at a predetermined price on a specific date
D)is a cash market transaction in which the ownership of the underlying asset is deferred until a specific date

Question 15

Long-term investments are all investments that are not short-term.

Question 16

Trading investments are categorized as noncurrent assets.

Question 17

Depending on the maturity date,held-to-maturity investments are categorized as current assets or long-term assets on the balance sheet.

Question 18

Held-to-maturity investments are categorized as long-term assets on the balance sheet,irrespective of the maturity date.

Question 19

Investment income may come from interest earned from debt investments,dividends earned from stock investments,and/or increases in the market value of the security.

Question 20

Short-term investments are investments in debt and equity securities that are highly illiquid.

Question 21

Trading investments ________.

A)are debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable
B)are investments in debt and equity securities that are highly illiquid and that the investor intends to keep till their maturity
C)are investments in debt securities,the investor intends to hold until maturity
D)are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future

Question 22

Which of the following financial instruments pay dividends?

A)futures contracts
B)real estate securities
C)debt securities
D)equity securities

Question 23

Which of the following is an example of investment income from securities?

A)deferred tax assets
B)depreciation of long-term assets
C)sale of fixed assets
D)interest earned from debt investments

Question 24

Which of the following will be classified as a held-to-maturity investment?

A)machinery
B)land
C)bond
D)equity investment

Question 25

Which of the following securities make an interest payment?

A)equity securities
B)preferred stocks
C)corporate bonds
D)significant interest investment

Question 26

________ are categorized as either current assets or long-term assets on the balance sheet,depending on the maturity date.

A)Equity investments
B)Matured investments
C)Trading investments
D)Held-to-maturity investments

Question 27

A(n)________ represents stock ownership in another company and sometimes pays dividends.

A)debt security
B)forward contracts
C)futures contract
D)equity security

Question 28

Companies invest in trading investments with the intent of ________.

A)increasing the amount of long-term assets
B)gaining the controlling rights of the investee
C)holding the investment till maturity
D)generating a profit on a quick sale

Question 29

Which of the following is an example of debt securities?

A)preferred stocks
B)forex investment
C)common stocks
D)corporate bonds

Question 30

Short-term investments ________.

A)are debt and equity securities that the investor expects to hold for more than a year
B)are investments in debt securities or equity securities in which the investor holds less than 50% of the voting stock and that the investor plans to sell in the very near future
C)are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less
D)are investments in debt securities,and the investor intends to hold them until maturity

Question 31

Which of the following is classified as a current asset in the balance sheet?

A)marketable securities
B)real estate investments
C)fixed assets
D)equipment

Question 32

Available-for-sale (AFS)investments are reported as ________ if the business expects to sell them within one year.

A)current assets
B)equity
C)long-term assets
D)either current assets or long-term assets

Question 33

Marketable securities are also known as ________.

A)short-term investments
B)held-to-maturity investments
C)debt investments
D)long-term investments

Question 34

Trading investments are categorized in the balance sheet as ________.

A)fixed assets
B)current assets
C)intangible assets
D)short-term liabilities

Question 35

A(n)________ is an example of equity securities.

A)preferred stock
B)municipal bond
C)corporate bond
D)U.S.Government bond

Question 36

Available-for-sale (AFS)investments that are planned to be held longer than a year are reported as ________.

A)equity
B)current assets
C)long-term assets
D)either current assets or long-term assets

Question 37

An equity security ________.

A)represents a credit relationship with another company or governmental entity
B)is a standardized contract between two parties to buy oil at a set price
C)represents stock ownership in another company and sometimes pays dividends
D)is a financial instrument which entitles the holder to receive periodic interest

Question 38

Which of the following securities pay a dividend?

A)corporate bonds
B)common stocks
C)debt securities
D)U.S.Government bonds

Question 39

Long-term investments ________.

A)include all debt securities that are trading investments or held-to-maturity investments
B)are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less
C)include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable
D)are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future

Question 40

U.S.government securities are ________.

A)real estate investments
B)equity securities
C)debt securities
D)forward contracts

Question 41

When a company makes investments in equity securities with less than 20% ownership using idle cash,its total equity will increase.

Question 42

In the journal entry for the dividends received for available-for-sale investments,the Dividend Revenue account will be debited.

Question 43

Which of the following is a condition to record an investment as an available-for-sale security?

A)There should not be any annual cash flows from the investment.
B)It should have a maturity of less than two years.
C)It should be a debt security.
D)The ownership in the voting stock of the investee should be less than 20%.

Question 44

When a company receives interest revenue on a bond which has a maturity of five years,________.

A)long-term assets decrease
B)long-term assets increase
C)equity increases
D)current assets decrease

Question 45

Which of the following is true of the accounting entries for debt securities?

A)The receipt of interest revenue is recorded with a debit to Interest Revenue and a credit to Cash.
B)Investments in debt securities are recorded at cost,including any brokerage fees paid.
C)The receipt of interest revenue is recorded with a debit to Cash and a credit to Long-term Securities-Held-to-Maturity.
D)Debt securities disposed of at maturity are recorded with a debit to the Short-term or Long-term Investments account and a credit to Cash.

Question 46

When a firm receives interest revenue on a bond,the equity remains unchanged.

Question 47

Debra Technologies invested $50,000 to buy $50,000 face value,8%,five-year in municipal bonds on January 2,2010.The bonds will mature on January 2,2015.The bonds pay interest semiannually on January 2 and July 2 every year till maturity.When the company receives interest payments,how will the balance sheet line items be affected?

A)assets will decrease
B)total asset will remain unchanged
C)liabilities will decrease
D)equity will increase

Question 48

Held-to-maturity investments applies only to debt securities because ________.

A)these securities earn periodic interest
B)equity securities do not mature on a specific date
C)these are long-term investments
D)equity securities are held for a very short period

Question 49

When a firm collects the face value of a bond investment at maturity,the total assets increase.

Question 50

At the maturity of a bond investment,the journal entry has ________.

A)a debit to Cash and a credit to the Short-term Investments account
B)a debit to the Short-term Investments account and a credit to Cash
C)a debit to the Interest Revenue and a credit to Cash
D)a debit to Cash and a credit to Interest Revenue

Question 51

Equity securities,in which the investor owns less than 20% ownership in the voting stock of the investee,can be either trading investments or available-for-sale investments.

Question 52

Janus Inc.has excess cash of $100,000 and invests the same amount in corporate bonds on March 30,2015 that mature twenty years from the date of purchase.The company plans to keep the bonds until maturity.Based on the information provided,which of the following is true of the balance sheet line items on March 30,2015?

A)liabilities will increase
B)equity will decrease
C)long-term assets will decrease
D)total assets will remain unchanged

Question 53

When a firm collects the face value of a long-term investment in bonds at maturity,________.

A)both assets and equity of the firm remains unchanged
B)both assets and liabilities of the firm increase
C)both assets and equity of the firm increase
D)liabilities decrease and equity increases

Question 54

When a company invests in a bond which has a maturity greater than one year and pays cash,________.

A)equity remains unchanged
B)current asset increases
C)liabilities increase
D)total assets increases

Question 55

Significant interest investments are reported as ________ on the balance sheet.

A)current assets
B)either current assets or current liabilities
C)long-term assets
D)either current assets or long-term assets.

Question 56

If a debt security is purchased at a discount,the discount must be amortized when the interest revenue is earned.

Question 57

________ are equity securities in which the investor owns 20% or more,but less than 50%,of the investee's voting stock.

A)Held-to-maturity investments
B)Significant interest investments
C)Controlling interest investments
D)Available-for-sale investments

Question 58

When a company invests in a long-term bond investment by paying cash,the total assets remain unchanged

Question 59

Debra Technologies invested $50,000 to buy $50,000 face value,8%,five-year in municipal bonds on January 2,2010.The bonds will mature on January 2,2015.The bonds pay interest semiannually on January 2 and July 2 every year till maturity.Based on the information provided,which of the following will be included in the journal entry for the transaction on January 2,2014?

A)a credit to Interest Revenue for $4,000
B)a debit to Interest Revenue for $4,000
C)a credit to Interest Revenue for $2,000
D)a debit to Interest Revenue for $2,000

Question 60

Accruex Corporation has excess cash of $25,000 and invests the same amount in corporate bonds on March 30,2015.The bonds will mature in two years from the date of purchase.The company plans to use the cash from the bonds for its business expansion after the bonds mature in 2017.Based on the information provided,which of the following will be included in the journal entry on March 30,2015?

A)a debit to Long-term Investments-Held-to-Maturity for $25,000
B)a debit to Short-term Investments-US Treasury Notes for $25,000
C)a debit to Long-term Investments-Available-for-Sale for $25,000
D)a credit to Long-term Investments-Available-for-Sale for $25,000

Question 61

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

Question 62

Green Services Inc.invests its excess cash in Creative Technologies Inc.and acquires 1,000 shares for $53.25 per share.Green Services Inc.owns less than 1% of Creative's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.

A)Long-term Investments-Available-for-Sale will be debited for $53,250
B)Long-term Investments-Held-to-Maturity will be debited for $53,250
C)Long-term Investments-Trading Investments will be credited for $53,250
D)Long-term Investments-Significant Interest Investments will be debited for $53,250

Question 63

Aurum Services Inc.acquired 100,000 shares of Gamma Metals Inc.on January 1,2015.Gamma pays a cash dividend of $0.25 per share on March 2,2015.With the current investment,Aurum Services Inc.holds 8% of Gamma.In the journal entry on March 2,2015,________.

A)Long-term Investments-Available-for-Sale will be credited
B)Dividend Revenue will be credited
C)Long-term Investments-Held-to-Maturity will be debited
D)Long-term Investments-Available-for-Sale will be debited

Question 64

When a company receives a cash dividend on its equity investments,which represents 2% of the investee,its total equity will remain unaffected.

Question 65

Green Services Inc.invests its excess cash in Creative Technologies Inc.and acquires 1,300 shares for $22.50 per share.Green Services Inc.owns less than 1% of Creative's voting stock and plans to hold the stock for two years.Which of the following is the correct journal entry for the transaction?

A)
B)
C)
D)

Question 66

Aurum Services Inc.acquired 100,000 shares of Gamma Metals Inc.on January 1,2015.Gamma declares a cash dividend of $0.25 per share on February 15,2015 and pays the cash dividend on March 2,2015.With the current investment,Aurum Services Inc.holds 8% of Gamma's voting stock.Which of the following will be the correct journal entry for the day when the dividend payment is made (March 2,2015)?

A)
B)
C)No Entry
D)

Question 67

Equity securities in which the investor owns less than 20% ownership in the voting stock of the investee can be ________.

A)significant interest investments
B)controlling interest investments
C)held-to-maturity investments
D)either trading investments or available-for-sale investments

Question 68

Gray Financial Services Inc.invested $15,000 to acquire 3,750 shares of Mitt Investments Inc.on March 15,2012.This investment represents less than 20% of the investee's voting stock.On May 7,2016,Greg Financial Services Inc.sells 1,750 shares for $12,250.When the transaction is recorded in a journal entry,________.

A)Gain on Disposal will be credited
B)Long-term Investments-Available-for-Sale will be debited
C)Cash will be credited
D)Long-term Investments-Held-to-Maturity will be debited

Question 69

Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies Inc.on March 1,2015.On July 2,2015,Delta pays a cash dividend of $0.25 per share.The investment is classified as an available-for-sale investment.Which of the following is the correct journal entry to record the transaction on July 2,2015?

A)
B)
C)
D)

Question 70

The Long-term Investments account is debited for the receipt of a dividend on an equity-method investment because the dividend increases the investee's equity.

Question 71

When a company invests in equity securities with 20% or more,but less than 50%,ownership in the investee's voting stock,the investor can significantly influence the investee's decisions.

Question 72

Investments accounted for by the equity method are recorded at cost at the time of purchase.

Question 73

Which of the following is the major difference between the accounting for equity securities and debt securities?

A)Debt securities are classified as liabilities,while equity securities are classified as assets.
B)Debt securities are classified as trading investments,while equity securities are classified as held-to-maturity investments.
C)Debt securities earn interest revenue,while equity securities earn dividend revenue.
D)Debt securities of all types have a maturity date,while only a few equity securities have a maturity date.

Question 74

A company that is controlled by another corporation is called a parent company.

Question 75

When a company receives a dividend payment for available-for-sale investments,________.

A)the total assets will remain unaffected
B)the long-term assets will decrease
C)the total equity will increase
D)the total liabilities will decrease

Question 76

Consolidated statements combine the balance sheets,income statements,and cash flow statements of the parent company with those of its controlling interest affiliates.

Question 77

Which of the following is true of the comparison between equity securities and debt securities?

A)Debt securities represent stock ownership in a company whereas equity securities represent a credit relationship with the company.
B)Equity securities earn dividend revenue whereas debt securities earn interest revenue.
C)Both debt securities and equity securities do not mature at a particular date.
D)Both debt securities and equity securities pay interest..

Question 78

Gain on Disposal of a trading investment is an equity account and is reported in the Other Revenues and (Expenses)section of the income statement.

Question 79

Joan Steel Inc.purchases 10,000 shares of Smith Metals Inc.for $34,000 in exchange for cash and now holds 3.2% voting stock of Smith Metals Inc.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.

A)long-term investments
B)cash
C)total assets
D)current assets

Question 80

Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies Inc.on March 1,2015.Delta pays a cash dividend of $0.25 per share on July 2,2015.The investment is classified as an available-for-sale investment.Based on the information provided,which of the following is true of the balance sheet as of July 2,2015?

A)Total assets in the balance sheet will remain unchanged.
B)Current assets in the balance sheet will remain unchanged.
C)Equity in the balance sheet will increase.
D)Total liabilities in the balance sheet will increase.