Question 1

Which of the following statements is not true?
A) Under the fair value through other comprehensive income model gains and losses are critical to the evaluation of management.
B) Under the fair value through profit or loss model, both realized and unrealized gains and losses are reported in the income statement.
C) Under the amortized cost model, no unrealized gains or losses are reported.
D) Non-strategic investments are purchased to generate investment income.

Accepted Answer

Under the fair value through other comprehensive income model, gains and losses are not critical to the evaluation of management as they are reported in other comprehensive income, not affecting the income statement directly.

Question 2

Debt investments include all of the following except
A) common shares.
B) guaranteed investment certificates.
C) treasury bills.
D) bonds.

Accepted Answer

Common shares are equity investments, not debt investments.

Question 3

Use the following information to answer questions.
Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: 
-The entry to record the receipt of the dividends on Jun 1 would include a
A) debit to Held for Trading Investments for $1,500.
B) debit to Dividend Revenue for $1,500.
C) credit to Dividend Revenue for $1,500.
D) credit to Strategic Investments for $1,500.

Accepted Answer

When dividends are received, they are recorded as income, so the entry would include a credit to Dividend Revenue for the amount received, which is $1,500.

Question 4

An advantage of using the fair value through other comprehensive income is that
A) the effect on other comprehensive income is reported in the income statement.
B) unrealized gains and losses are not used to evaluate management.
C) unrealized losses must be reported on the income statement, but unrealized gains are reported in other comprehensive income.
D) unrealized gains must be reported on the income statement, but unrealized losses are reported in other comprehensive income.

Accepted Answer

Unrealized gains and losses under fair value through other comprehensive income are reported in other comprehensive income, not affecting the income statement, thus not used to evaluate management's performance directly.

Question 5

On September 15, 2018, Alonso Ltd. sells 150 common shares of Bandi Corp., which were being held as a trading investment. The shares were acquired six months ago at $75 a share. Alonso sells the shares for $60 a share. The entry to record the sale is 
A)
B)
C)
D)

Accepted Answer

The answer of On September 15, 2018, Alonso Ltd. sells...

Question 6

All of the following investments are generally shown at their fair value except
A) short-term debt investments.
B) held for trading investments.
C) bond investments intended to be held to maturity.
D) shares purchased with the intention of achieving a capital gain on sale.

Accepted Answer

Bond investments intended to be held to maturity are typically shown at amortized cost, not fair value, as they are not intended to be sold before maturity.

Question 7

All of the following statements concerning strategic investments are true, except
A) they include held for trading investments.
B) they are purchased for the strategic purpose of influencing relationships between companies.
C) they are generally long-term investments.
D) they are equity securities.

Accepted Answer

Held for trading investments are typically short-term and not purchased for strategic purposes, unlike strategic investments which are generally long-term and aimed at influencing company relationships.

Question 8

Debt investments are all of the following except
A) low risk.
B) classified according to maturity.
C) equity securities.
D) debt securities.

Accepted Answer

Debt investments are not equity securities; they are financial instruments like bonds or loans, representing a loan made by an investor to a borrower.

Question 9

Which of the following is false?
A) The cost model is used only for equity investments.
B) The cost model reports realized gains and losses on the income statement.
C) The cost model is used to account for equity investments where there is significant influence.
D) The cost model is very similar to the amortized cost model.

Accepted Answer

The cost model is not used for equity investments where there is significant influence; instead, the equity method is typically used in such cases.

Question 10

If a trading investment in bonds is sold one month after its value was adjusted at year end, the investment account is
A) debited for the carrying amount of the bonds at the sale date.
B) credited for the cost of the bonds at the sale date.
C) credited for the carrying amount of the bonds at the sale date.
D) debited for the cost of the bonds at the sale date.

Accepted Answer

When a trading investment is sold, the investment account is credited for the carrying amount of the bonds at the sale date, reflecting the removal of the asset from the books.

Question 11

Use the following information to answer questions.
Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: 
-The entry, if any is required, to record the value of the investment on December 31 would include a debit to
A) Realized Losses for $450.
B) Unrealized Loss for $750.
C) No entry is required.
D) Unrealized Losses of $450.

Accepted Answer

Unrealized losses are recognized when the fair value of an investment is less than its cost.

Question 12

Held for Trading Investments are all of the following except
A) debt or equity securities.
B) securities purchased to generate a net income from short-term price fluctuations.
C) securities held for the purpose of earning capital gains.
D) strategic investments.

Accepted Answer

Held for Trading Investments are typically not strategic investments; they are intended for short-term profit from price changes.

Question 13

Which one of the following would not be classified as a non-strategic investment?
A) money-market securities
B) idle cash in a chequing account
C) held for trading investments
D) long-term bonds

Accepted Answer

Idle cash in a chequing account is not classified as a non-strategic investment because it is not intended to generate a return.

Question 14

Use the following information to answer questions.
Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: 
-The entry to record the sale of the shares on Oct 1 would include a
A) credit to Held for Trading Investments for $3,800.
B) credit to Realized Gain for $800.
C) credit to Unrealized Gain for $800.
D) debit to Unrealized Gain for $3,800.

Accepted Answer

The answer of Use the following information to answer questions.
Wells...

Question 15

Which of the following is not true about the accounting for Held for Trading Investments?
A) They are reported as current assets on the statement of financial position.
B) Realized gains and losses are reported on the income statement.
C) They are valued at fair value.
D) Unrealized gains and losses are reported on the statement of comprehensive income.

Accepted Answer

Unrealized gains and losses for Held for Trading Investments are reported on the income statement, not the statement of comprehensive income.

Question 16

Which of the following statements is not correct regarding strategic investments?
A) They are purchased with the purpose of influencing the investee company.
B) They are generally classified as investments in associates.
C) They are frequently debt securities.
D) The degree of influence determines how a strategic investment is classified.

Accepted Answer

Strategic investments are typically equity securities, not debt securities, as they are made to gain influence over the investee company.

Question 17

On June 1, 2018, Mango Corp. purchased Papaya Corp. common shares for $12,100 as a trading investment. Three months later, Mango sold these shares for $13,000. The entry to record the sale would include a
A) debit to Cash of $12,100.
B) credit to Interest Revenue of $900.
C) credit to Held for Trading Investments of $13,000.
D) credit to Realized Gain on Held for Trading Investments of $900.

Accepted Answer

The sale of the shares resulted in a gain of $900 ($13,000 - $12,100), which should be recorded as a credit to Realized Gain on Held for Trading Investments.

Question 18

Which of the following would never be classified as a long-term investment?
A) strategic investments
B) held for trading investments
C) investments in associates
D) bonds with a ten-year maturity

Accepted Answer

Held for trading investments are typically classified as short-term investments because they are intended to be sold in the near term to generate profit from price fluctuations.

Question 19

Hankers Corporation buys 1,500 shares of Viggo Ltd.'s common shares as a trading investment. The shares are purchased for $45 a share. At year end the shares are trading at $48. The adjusting entry at year end is 
A) 
B) 
C) 
D) No entry is required.

Accepted Answer

The answer of Hankers Corporation buys 1,500 shares of Viggo...

Question 20

Use the following information to answer questions.
Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: 
-The entry to record the purchase of the Taylor shares on Feb 1 would include a
A) debit to Long-Term Held for Trading Investments.
B) debit to Held for Trading Investments.
C) debit to Strategic Investments.
D) debit to Investment in Associates.

Accepted Answer

The purchase of shares for trading purposes is recorded as a debit to Held for Trading Investments, reflecting the intention to sell them in the short term for profit.

Quiz 12: Reporting and Analyzing Investments

Which of the following statements is not true?

Debt investments include all of the following except

Use the following information to answer questions. Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: -The entry to record the receipt of the dividends on Jun 1 would include a

An advantage of using the fair value through other comprehensive income is that

On September 15, 2018, Alonso Ltd. sells 150 common shares of Bandi Corp., which were being held as a trading investment. The shares were acquired six months ago at $75 a share. Alonso sells the shares for $60 a share. The entry to record the sale is

All of the following investments are generally shown at their fair value except

All of the following statements concerning strategic investments are true, except

Debt investments are all of the following except

Which of the following is false?

If a trading investment in bonds is sold one month after its value was adjusted at year end, the investment account is

Held for Trading Investments are all of the following except

Which one of the following would not be classified as a non-strategic investment?

Use the following information to answer questions. Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: -The entry to record the sale of the shares on Oct 1 would include a

Which of the following is not true about the accounting for Held for Trading Investments?

Which of the following statements is not correct regarding strategic investments?

On June 1, 2018, Mango Corp. purchased Papaya Corp. common shares for $12,100 as a trading investment. Three months later, Mango sold these shares for $13,000. The entry to record the sale would include a

Which of the following would never be classified as a long-term investment?

Hankers Corporation buys 1,500 shares of Viggo Ltd.'s common shares as a trading investment. The shares are purchased for $45 a share. At year end the shares are trading at $48. The adjusting entry at year end is

Use the following information to answer questions. Wells Inc. reported these transactions relating to marketable Held for Trading Investments intended to generate net income and to be sold in the near term: -The entry to record the purchase of the Taylor shares on Feb 1 would include a