Question 1

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 typically recorded at cost when purchased, and interest revenue is recognized over time as it is earned on the investment. This follows the general accounting principle of recording assets at their historical cost and recognizing revenue when it is earned, rather than when cash is received.

Question 2

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

Accepted Answer

Long-term investments are usually held as an investment of cash for future growth or expansion, not for use in current operations.

Question 3

Any cash dividends received from stock investments with insignificant influence are recorded as Dividend Expense.

Accepted Answer

Cash dividends received from stock investments with insignificant influence are recorded as Dividend Income, not Dividend Expense. Dividend Expense is recorded when a company pays dividends to its shareholders.

Question 4

If a company has a controlling influence over another company,the controlling investor is called the parent,and the investee company is called the subsidiary.

Accepted Answer

This is true as per generally accepted accounting principles (GAAP) and also as defined by the Securities and Exchange Commission (SEC).

Question 5

When an investor company owns between 20% and 50% of the voting stock of an investee company,it has a controlling influence.

Accepted Answer

Controlling influence is typically considered to occur when an investor company owns more than 50% of the voting stock of an investee company. Ownership of between 20% and 50% of voting stock usually indicates significant influence, but not control.

Question 6

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

Accepted Answer

Long-term investments typically include investments in land, real estate, stocks, bonds, or other assets that are not used in a company's day-to-day operations. These are generally intended to be held for a significant period of time and generate income or appreciate in value over time.

Question 7

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 Debt Investments-HTM for $50,000 and a credit to Cash for $50,000.

Accepted Answer

This is the correct journal entry for purchasing bonds intended to be held to maturity. The debit is to the Debt Investments Held-to-Maturity (HTM) account and the credit is to the Cash account for the same amount of $50,000.

Question 8

Debt securities are recorded at cost when purchased.

Accepted Answer

Debt securities are recorded at cost when purchased, and any changes in their fair value are recorded as unrealized gains or losses until they are sold or mature.

Question 9

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

Accepted Answer

Equity securities represent ownership in a company, whereas creditor relationships are typically found in debt securities such as notes, bonds, and certificates of deposit.

Question 10

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 are readily convertible to cash and mature within three months or less. Examples include Treasury bills, money market funds, and commercial paper.

Question 11

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 (PP&E) on the balance sheet, not as a long-term investment.

Question 12

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 13

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

Accepted Answer

The consolidation method is indeed used to account for long-term investments in equity securities with controlling influence. It involves combining the financial statements of the investing company and the investee company into a single set of statements, with the investing company reporting the assets, liabilities, revenues, and expenses of the investee as if they were its own. This method is used when the investing company has the ability to control or exert significant influence over the investee.

Question 14

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

Accepted Answer

The journal entry to record receipt of dividends on a stock investment with insignificant influence would be to debit Cash and credit Dividend Revenue for the same amount ($0.35 per share x 300 shares = $105).

Question 15

When a stock investment with insignificant influence 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

If the sale proceeds are less than the cost, a loss on the sale of the security is recorded, not a gain.

Question 16

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

Accepted Answer

Comprehensive income includes all changes in equity during a period, except for investments made by owners (contributions) and dividends distributed to owners. This includes items that are not included in net income, such as gains or losses from foreign currency translation, changes in the value of available-for-sale investments, and adjustments to pension plans.

Question 17

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

Accepted Answer

This statement accurately describes the definition of short-term investments. They are expected to be converted to cash within a year or the operating cycle of the business, and are considered liquid assets.

Question 18

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 19

Short-term investments are also called marketable securities.

Accepted Answer

Short-term investments are easily marketable securities that can be easily bought and sold in the market.

Question 20

Trading debt securities are reported as long-term assets.

Accepted Answer

Trading debt securities are reported as current assets because they are intended to be sold in the short term to generate income.

Quiz 26: Investments