Question 1

Long-term investments are usually held as an investment of cash for use in current operations.

Accepted Answer

Long-term investments are usually held for a period exceeding one year and are not intended for use in current operations. They are typically held for the purposes of generating income or capital gains.

Question 2

Debt securities are recorded at cost when purchased.

Accepted Answer

Debt securities are initially measured at cost when purchased, which includes the purchase price and any transaction costs directly attributable to the acquisition. Subsequent to initial recognition, some types of debt securities may be measured at amortized cost or fair value depending on the accounting policy chosen by the reporting entity.

Question 3

Land used in the company's operations is reported as a long-term investment.

Accepted Answer

Land used in the company's operations is reported as property, plant, and equipment, not as a long-term investment.

Question 4

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Accepted Answer

Debt securities are initially recorded at cost and subsequently adjusted for amortization of any premium or discount. Interest revenue is recognized when earned, typically on a periodic basis (such as semiannually or quarterly).

Question 5

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

Accepted Answer

Cash equivalents are investments that can be quickly and easily converted to cash, typically within three months or less. Examples of cash equivalents include short-term government bonds, treasury bills, and money market funds.

Question 6

Any cash dividends received from equity securities are recorded as Dividend Expense.

Accepted Answer

Cash dividends received from equity securities are recorded as Dividend Income, not as expense.

Question 7

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

Accepted Answer

Comprehensive income includes all gains and losses in equity during a period, such as unrealized gains or losses on investments, foreign currency translation adjustments, and changes in pension plan liabilities. It does not include owners' investments and dividends, which are considered separate transactions.

Question 8

Short-term investments are also called temporary investments or marketable securities.

Accepted Answer

Short-term investments refer to investments that are expected to be liquidated within a year or less, and may include marketable securities such as stocks, bonds, or Treasury bills.

Question 9

Long-term investments include investments in land or other assets not used in a company's operations.

Accepted Answer

Long-term investments typically refer to investments in assets not used in a company's operations, such as land, buildings, or other securities held for a long period of time.

Question 10

Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

Accepted Answer

Equity securities reflect an ownership interest in a company, giving the investor the right to share in profits and vote on corporate decisions. Examples of equity securities include stocks and mutual funds.

Question 11

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

Accepted Answer

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence. This method combines the financial statements of the investor and investee to show the combined financial results of the two companies. The equity method without consolidation is used for investments in equity securities with significant influence but not controlling influence.

Question 12

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

Accepted Answer

This is the correct journal entry to record the purchase of bonds at cost. The debit to Long-Term Investments reflects the investment in the bonds, and the credit to Cash reflects the cash paid for the bonds.

Question 13

Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business, and are readily convertible to cash.

Accepted Answer

Short-term investments are expected to be easily and quickly converted into cash, usually within a year or the operating cycle of the business.

Question 14

When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

Accepted Answer

The answer of When an investor company owns more than...

Question 15

A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Accepted Answer

The answer of A company holds $40,000 of 7% bonds...

Question 16

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Accepted Answer

This is the correct journal entry to record the receipt of dividends on stock. The debit to Cash represents the increase in the asset account, while the credit to Dividend Revenue represents the increase in revenue earned from the investment. As there are 300 shares and each share received $0.35, the total amount received is $105.

Question 17

Investments in trading securities are accounted for using the equity method with consolidation.

Accepted Answer

Investments in trading securities are not accounted for using the equity method with consolidation. The equity method is used for investments in associates and joint ventures, and consolidation is used for subsidiaries.

Question 18

When an investment in an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

Accepted Answer

When the cost is greater than the proceeds, a loss on the sale of the security is recorded.

Question 19

When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

Accepted Answer

The answer of When the cost of a short-term held-to-maturity...

Question 20

A controlling investor is called the parent, and the investee company is called the subsidiary.

Accepted Answer

This statement is true. When one company has control of another company through a significant ownership stake, it is known as a controlling investor or parent, while the company being controlled is known as the subsidiary.

Quiz 15: Investments and International Operations