Question 1

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

Dividend yield is calculated by dividing the annual dividend per share by the current market value per share, and then multiplying the result by 100 to get a percentage.

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

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

Therefore, the company's dividend yield is 2.5%, which corresponds to choice letter A.

Question 2

Purchased $400,000 of ABC Co.5% bonds at 100 plus accrued interest of $4,500.Sold $250,000 of bonds at 97.The journal entry for the purchase would include:

Accepted Answer

When purchasing bonds, the buyer is entitled to any accrued interest on the bonds since the last interest payment date. Therefore, the journal entry for the purchase would include a debit to Bonds Payable (for the face value of $400,000) and a debit to Interest Receivable (for the accrued interest of $4,500). The credit entry would be to Cash (for the total cost of $404,500). The option with a debit to Interest Receivable is the only correct choice.

Question 3

When the cost method is used to account for an investment,the carrying value of the investment is affected by

Accepted Answer

When using the cost method, the carrying value of the investment is not affected by either the earnings or dividend distributions of the investee. The investor simply records the initial cost of the investment and does not adjust it for any subsequent changes in the investee's performance.

Question 4

The company whose more than 50% stock is owned by the another company is called the

Accepted Answer

A subsidiary company is a company whose more than 50% stock is owned by another company, known as the parent company or holding company. The parent company or holding company is sometimes also referred to as the controlling company, but the more appropriate terminology is subsidiary as it reflects the legal and financial relationship between the two entities. The investee company refers to a company in which another company has made an investment, but does not necessarily have a controlling stake. The sibling company does not have any specific definition in accounting or business terminology.

Question 5

Yankton Company began the year without an investment portfolio.During the year they purchased investments classified as trading securities at a cost of $13,000.At the end of the year,the market value of the securities was $11,000.The Yankton Company's financial statements for the current year should show

Accepted Answer

The answer of Yankton Company began the year without an...

Question 6

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

Accepted Answer

Cash flows from stock investments are part of cash flows from operating, investing, and financing activities, but they are not part of comprehensive income. Comprehensive income includes foreign currency items, unrealized gains and losses, and pension liability adjustments.

Question 7

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 8

On February 12,Addison,Inc.purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee.On August 22,Lucas paid a $0.42 dividend per share.On November 10,4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.The journal entry for the sale would include:

Accepted Answer

The answer of On February 12,Addison,Inc.purchased 6,000 shares of Lucas...

Question 9

The account Unrealized Gain (Loss)on Available-For-Sale Securities should be included in the

Accepted Answer

The answer of The account Unrealized Gain (Loss)on Available-For-Sale Securities...

Question 10

On January 1,2014,Blanton Company's Valuation Allowance for Trading Investments account has a debit balance of $23,200.On December 31,2014,the cost of the trading securities portfolio was $80,000.The fair value was $98,000.Which of the following would Blanton report on the income statement for 2014?

Accepted Answer

The answer of On January 1,2014,Blanton Company's Valuation Allowance for...

Question 11

If one company owns more than 50% of the common stock of another company

Accepted Answer

When one company owns more than 50% of the common stock of another company, a parent-subsidiary relationship exists. This means that the owning company (parent) controls the activities of the subsidiary, and the subsidiary is reported as an asset on the parent's balance sheet. Therefore, option B is the correct choice. Options A, C, and D are incorrect as they do not accurately describe the relationship between the two companies.

Question 12

Yankton Company began the year without an investment portfolio.During the year they purchased investments classified as available-for-sale securities at a cost of $13,000.At the end of the year,the market value of the securities was $11,000.The Yankton Company's financial statements for the current year should show

Accepted Answer

Under the available-for-sale category, any unrealized loss on investments is reported as a stockholders' equity adjustment on the balance sheet. Therefore, there is no loss reported on the income statement. The financial statements should show available-for-sale securities of $11,000 (the market value at the end of the year) and an unrealized loss of $2,000 as a deduction from stockholders' equity on the balance sheet.

Question 13

Which of the following would be considered an "Other Comprehensive Income" item?

Accepted Answer

An unrealized loss on available-for-sale securities would be considered an Other Comprehensive Income item, as it represents a change in the value of an investment that has not been realized through a sale. Net income represents the overall profit or loss of a company, extraordinary losses and gains relate to specific events, and gains on disposal of discontinued operations relate to the sale of a business segment. These items are typically included in the income statement, not Other Comprehensive Income.

Question 14

The account Valuation Allowance for Trading Securities is found on the:

Accepted Answer

The Valuation Allowance for Trading Securities is an adjustment made to the value of the asset account for Trading Securities on the balance sheet. It is used to account for any expected losses that may occur due to changes in market values of the securities. Therefore, the best choice is B as it is an adjustment to the asset account.

Question 15

On February 12,Addison,Inc.purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee.On August 22,Lucas paid a $0.42 dividend per share.On November 10,4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.The journal entry to record the purchase would include:

Accepted Answer

The journal entry to record the purchase would include a debit to Investments for the cost of the shares plus the brokerage fee, which is $132,000 + $240 = $132,240. Therefore, the correct choice is C.

Question 16

Held-to-Maturity securities

Accepted Answer

Held-to-Maturity securities are primarily purchased to earn interest revenue and are reported on the balance sheet at amortized cost, not fair market value. They include mainly bonds, but not stocks. Therefore, choice C is the best answer.

Question 17

Purchased $400,000 of ABC Co.5% bonds at 100 plus accrued interest of $4,500.Sold $250,000 of bonds at 97 plus accrued interest.The journal entry for the sale would include:

Accepted Answer

The answer of Purchased $400,000 of ABC Co.5% bonds at...

Question 18

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 is determined by the investor's level of ownership and control through voting rights. The three methods used are the equity method, the fair value method and the cost method.

Question 19

The account Unrealized Gain (Loss)on Trading Securities should be included in the

Accepted Answer

The answer of The account Unrealized Gain (Loss)on Trading Securities...

Question 20

An investor purchased 500 shares of common stock,$25 par,for $19,250.Subsequently,100 shares were sold for $35 per share.What is the amount of gain or loss on the sale?

Accepted Answer

The investor purchased the 500 shares for a total of $19,250, which means the cost per share was $38.50 ($19,250 / 500). When 100 shares were sold for $35 per share, the total revenue was $3,500 ($35 x 100). However, since the cost per share was $38.50, there was a loss of $3.50 per share ($38.50 - $35). Therefore, the total loss on the sale was $350 ($3.50 x 100).

Quiz 13: Investments and Fair Value Accounting