Question 1

Under the cost method of accounting for dividends

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Question 2

The cost method of accounting for investments in stock should be employed when the

Accepted Answer

The cost method should be used when the investor's influence on the investee is insignificant. The other choices require different methods of accounting - A requires consolidation, B requires equity method, and C may require fair value method.

Question 3

Ashland Corporation sells 100 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Ashl and Keller sold the shares for $38 a share. The entry to record the sale is

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Question 4

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash.
June 1 Received cash dividends of $1 per share on Raley stock.
Oct) 1 Sold 1,000 shares of Raley stock for $19,500.
Dec) 1 Received cash dividends of $2 per share on Raley stock.
The entry to record the receipt of the dividends Dec. 1 would include a

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The answer of Hardin Park Company had these transactions pertaining...

Question 5

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash.
June 1 Received cash dividends of $1 per share on Raley stock.
Oct) 1 Sold 1,000 shares of Raley stock for $19,500.
Dec) 1 Received cash dividends of $2 per share on Raley stock.
The entry to record the receipt of the dividends June 1 would include a

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The answer of Hardin Park Company had these transactions pertaining...

Question 6

If an investor owns less than 20% of the common stock of another corporation as an investment

Accepted Answer

According to accounting standards, ownership of less than 20% of the common stock of another corporation is presumed to represent a passive investment and the investor is presumed to have relatively little influence on the investee. Therefore, the equity method of accounting is not required, and no dividends can be expected to be received.

Question 7

Gulf Coast Corporation makes an investment in 100 shares of Eta Company's common stock. The stock is purchased for $52 a share. The entry for the purchase is

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Question 8

The equity method should generally be used to account for an investment in stock when the level of ownership is

Accepted Answer

The equity method should generally be used to account for an investment in stock when the level of ownership is between 20% and 50%. This is because when an investor has significant influence over another company, it is appropriate to account for the investment using the equity method, as this method reflects the investor's actual influence over the invested company's financial statements.

Question 9

Outer Banks Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $40 a share. Outer Banks sold the shares for $43 a share. The entry to record the sale is

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The answer of Outer Banks Corporation sells 200 shares of...

Question 10

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash.
June 1 Received cash dividends of $1 per share on Raley stock.
Oct) 1 Sold 1,000 shares of Raley stock for 19,500.
Dec) 1 Received cash dividends of $2 per share on Reley stock.
The entry to record the purchase of the Raley stock would include a

Accepted Answer

The entry to record the purchase of stock investments is a debit to the Stock Investments account for the cost of the investment, which in this case is $44,500 paid in cash. Option A is incorrect because it reflects a lower cost for the investment. Option B is incorrect because it only reflects the payment in cash and not the acquisition of the investment. Option D is incorrect because Investment Expense would only be recorded if there were any additional costs associated with the purchase, such as brokerage fees or commissions.

Question 11

On January 1, 2014, Orleans industries acquired a 15% interest in Florida Corporation through the purchase of 12,000 shares of Florida Corporation common stock for $320,000. During 2014, Florida Corp. paid $80,000 in dividends and reported a net loss of $100,000. Orleans is able to exert significant influence on Florida. However, Orleans mistakenly records these transactions using the cost method rather than the equity method of accounting. Which of the following would show the correct presentation for Orlean's investment using the equity method?

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Question 12

If the cost method is used to account for an investment in common stock, dividends received should be

Accepted Answer

When the cost method is used to account for an investment in common stock, dividends received should be credited to the Dividend Revenue account. This is because the cost method does not adjust the value of the investment based on changes in the fair value of the stock, so any dividends received are simply recognized as revenue.

Question 13

For accounting purposes, the method used to account for investments in common stock is determined by

Accepted Answer

The method used to account for investments in common stock is determined by the extent of an investor's influence over the operating and financial affairs of the investee. This determines whether the investor should use the equity method or the fair value method of accounting for the investment. The other options listed (amount paid for the stock, past dividends, acquisition type) do not impact the accounting method used.

Question 14

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash.
June 1 Received cash dividends of $1 per share on Raley stock.
Oct) 1 Sold 1,000 shares of Raley stock for $19,500.
Dec) 1 Received cash dividends of $2 per share on Raley stock.
The entry to record the sale of the stock would include a

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The answer of Hardin Park Company had these transactions pertaining...

Question 15

When the cost method is used to account for a stock investment the carrying value of the investment is affected by

Accepted Answer

When the cost method is used to account for a stock investment, only the original cost of the investment is recorded and subsequent earnings or dividend distributions of the investee do not affect the carrying value of the investment.

Question 16

CGS Corporation makes an investment in 200 shares of Bama Company's common stock. The stock is purchased for $53 a share. The entry for the purchase is:

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Question 17

A purchase of common stock of Blue Wave Corporation for $14,500 was sold three months later for $15,000. The entry to record the sale would include a

Accepted Answer

The sale resulted in a gain of $500 ($15,000 - $14,500), which should be credited to the Gain on Sale of Stock Investments account. The Cash account should be debited for the amount received for the sale of the stock ($15,000). There is no need to credit the Stock Investments account or the Interest Revenue account for this transaction.

Question 18

When a company holds stock of several different corporations, the group of securities is identified as a(n)

Accepted Answer

The term used to describe a company's holdings of securities from various corporations is an investment portfolio. Option A, affiliated investment, suggests a more specific kind of investment that involves a relationship between the investing company and the other corporations. Option B, consolidated portfolio, is not accurate as the term "consolidated" typically refers to combining the financial statements of multiple companies into one. Option D, controlling interest, refers to when a company owns enough stock in another corporation to have significant influence over its decision-making processes, which may not be the case for all the securities held in an investment portfolio.

Question 19

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

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Question 20

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

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Quiz 14: Time Value of Money

Under the cost method of accounting for dividends

The cost method of accounting for investments in stock should be employed when the

Ashland Corporation sells 100 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Ashl and Keller sold the shares for $38 a share. The entry to record the sale is

If an investor owns less than 20% of the common stock of another corporation as an investment

Gulf Coast Corporation makes an investment in 100 shares of Eta Company's common stock. The stock is purchased for $52 a share. The entry for the purchase is

The equity method should generally be used to account for an investment in stock when the level of ownership is

Outer Banks Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $40 a share. Outer Banks sold the shares for $43 a share. The entry to record the sale is

If the cost method is used to account for an investment in common stock, dividends received should be

For accounting purposes, the method used to account for investments in common stock is determined by

When the cost method is used to account for a stock investment the carrying value of the investment is affected by

CGS Corporation makes an investment in 200 shares of Bama Company's common stock. The stock is purchased for $53 a share. The entry for the purchase is:

A purchase of common stock of Blue Wave Corporation for $14,500 was sold three months later for $15,000. The entry to record the sale would include a

When a company holds stock of several different corporations, the group of securities is identified as a(n)

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is