Question 1

Match each of the definitions that follow with the appropriate investment term (a-j).
-Debt investments that a company intends to keep until their maturity date

Accepted Answer

Held-to-maturity securities refer to debt investments that a company intends to keep until their maturity date.

Note: None of the other choices match this definition.

Question 2

Match each of the definitions that follow with the appropriate investment term (a-j).
-Debt and equity securities purchased and sold to earn short-term profits from changes in the market price

Accepted Answer

Trading securities are purchased and sold with the intention of earning short-term profits from changes in market price.

Answer: G
 Available-for-sale securities are debt or equity securities that are not held for trading or held to maturity, but are available for sale to earn profits from changes in market price.

Answer: H
 Held-to-maturity securities are debt securities that are held until maturity and do not fluctuate in value with changes in the market.

Answer: I
 Equity method is an accounting method used to account for investments in associates, where the investor has significant influence but not control, and proportionate share of profits and losses are recognized on their income statement.

Answer: J
 Business combination refers to the acquisition of one company by another, where the acquiring company gains control over the target company through ownership of its equity shares.

Question 3

Match each of the definitions that follow with the appropriate investment term (a-j).
-Securities not held for trading or to maturity or other strategic reasons

Accepted Answer

Available-for-sale securities are securities that are not held specifically for trading, to maturity, or for strategic reasons.

Answer: A
 Debt securities are investments in bonds or other debt instruments where the investor lends money to the issuer.

Answer: B
 Equity securities are investments in stocks or other equity instruments where the investor owns a portion of the company.

Answer: C
 Investor is a person or entity that invests money in various types of investments to generate a return.

Answer: D
 Investee is a company or entity that receives investment from an investor.

Answer: E
 Cost method is an accounting method used to account for investments where the investor records the investment at its original cost.

Answer: F
 Trading securities are investments in debt or equity securities that are purchased with the intention of selling them quickly for a profit.

Answer: H
 Held-to-maturity securities are investments in debt instruments where the investor intends to hold the securities until maturity.

Answer: I
 Equity method is an accounting method used to account for investments where the investor owns significant influence, but not control, over the investee.

Answer: J
 Business combination is a transaction where one company purchases another company or merges with another company to increase its business operations.

Question 4

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share.The market value of the stock is $16 per share.The company's dividend yield is

Accepted Answer

To calculate the dividend yield, we need to divide the annual dividend per share by the current market value per share.

Annual dividend per share = $0.40
Current market value per share = $16

Dividend yield = ($0.40/$16) x 100% = 2.5%

Therefore, the answer is choice A, which is 2.5%.

Question 5

The dividend yield is measured as

Accepted Answer

The dividend yield is a measure of the amount of cash flow an investor is receiving for each dollar invested in the stock. It is calculated by dividing the annual dividends paid by the stock by the current market price of the stock. So, the correct formula for dividend yield is Dividends per Share of Common Stock/Market Price per Share of Common Stock, which is option A.

Question 6

Match each of the definitions that follow with the appropriate investment term (a-j).
-Notes and bonds that pay interest and have a fixed maturity

Accepted Answer

The definition provided describes debt securities, which are instruments that represent a loan made by an investor to an investee with a fixed maturity date and pay fixed interest. Examples include notes and bonds.

Question 7

GAAP requires trading and available-for-sale investments to be reported at their

Accepted Answer

GAAP requires trading and available-for-sale investments to be reported at their fair value. This means that the investments are measured and reported at the price that they would sell for in an open market. Historical cost (B), market value (C), and net realizable value (D) are not required by GAAP for reporting trading and available-for-sale investments.

Question 8

Match each of the definitions that follow with the appropriate investment term (a-j).
-The method of reporting an investment that represents less than 20% of the voting stock of another company

Accepted Answer

The method of reporting an investment that represents less than 20% of the voting stock of another company is the cost method.

Question 9

Which of the following is not a part of comprehensive income?

Accepted Answer

Cash flows from stock investments are not a part of comprehensive income. Comprehensive income refers to all gains and losses that affect a company's equity, including foreign currency items, unrealized gains and losses on available-for-sale securities, and pension liability adjustments. Cash flows from stock investments are recorded in the cash flow statement but are not considered a component of comprehensive income.

Question 10

Companies may report comprehensive income on each of the following statements except

Accepted Answer

The answer of Companies may report comprehensive income on each...

Question 11

All of the following are true of the effect of fair value accounting on the financial statements except

Accepted Answer

Changes in the fair value of available-for-sale securities are recognized in other comprehensive income, not on the income statement. This is a key distinction in how different types of securities are reported under fair value accounting.

Question 12

Match each of the definitions that follow with the appropriate investment term (a-j).
-Preferred and common stocks that represent ownership in a company and do not have a fixed maturity date

Accepted Answer

Equity securities represent ownership in a company and do not have a fixed maturity date. Preferred and common stocks are examples of equity securities.

Note: None of the other investment terms listed match this definition.

Question 13

On July 5,Winter Company had a market price of $58 per share of common stock.For the prior year,Winter Company had paid an annual dividend of $3.48 per share.What is the dividend yield for Winter Company?

Accepted Answer

The dividend yield is calculated by dividing the annual dividend per share by the market price per share and then multiplying by 100 to get a percentage. So, for Winter Company, the dividend yield = ($3.48 / $58) * 100 = 6.0%.

Question 14

Match each of the definitions that follow with the appropriate investment term (a-j).
-The company investing in another company's stock

Accepted Answer

The answer of Match each of the definitions that follow...

Question 15

Financial statements include assets listed at

Accepted Answer

Financial statements can include assets listed at their fair value, their historical cost, and their market value, depending on the accounting standards applied (such as GAAP or IFRS) and the specific circumstances of the asset.

Question 16

All of the following are true of fair value accounting except

Accepted Answer

Fair value accounting impacts both the balance sheet and the income statement. For example, changes in fair value of certain assets or liabilities can affect the income statement through gains or losses recognized due to those changes. This contradicts the statement that fair values only affect balance sheet accounts.

Question 17

Changes in the value of available-for-sale securities are

Accepted Answer

Changes in the value of available-for-sale securities are reported as part of other comprehensive income, which is a component of stockholders' equity, rather than being recognized on the income statement.

Question 18

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock.The market value of the common stock is $80 per share.Edison's dividend yield is

Accepted Answer

The answer of Edison Corporation paid a dividend of $10...

Question 19

Match each of the definitions that follow with the appropriate investment term (a-j).
-When using this,dividends are treated as a reduction of the investment

Accepted Answer

The answer of Match each of the definitions that follow...

Question 20

Which of the following would be considered an "other comprehensive income" item?

Accepted Answer

Unrealized loss on available-for-sale securities is an example of other comprehensive income, which represents gains or losses that are not realized and recognized in the income statement. The other options are not examples of other comprehensive income. Net income represents the total earnings from operations, including realized gains or losses, and extraordinary losses related to floods are recognized in the income statement as well. Gain on disposal of discontinued operations is also recognized as part of net income.

Quiz 15: Investments and Fair Value Accounting

Match each of the definitions that follow with the appropriate investment term (a-j) . -Debt investments that a company intends to keep until their maturity date

Match each of the definitions that follow with the appropriate investment term (a-j) . -Debt and equity securities purchased and sold to earn short-term profits from changes in the market price

Match each of the definitions that follow with the appropriate investment term (a-j) . -Securities not held for trading or to maturity or other strategic reasons