Question 1

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

The available-for-sale securities should be reported on the balance sheet at the market value of $11,000. The unrealized loss of $2,000 should be reported as a stockholders' equity adjustment (not an expense) on the balance sheet. There is no impact on the income statement until the securities are sold.

Question 2

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. The parent company has controlling power in the subsidiary company's decisions and operations. Therefore, option C is the correct answer. Option A, B, and D are incorrect as the terms controlling company, investee company, and sibling company do not define the ownership relationship as described in the question.

Question 3

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 because the degree of influence determines whether the investment should be accounted for using the equity method, which is used for significant influence, or the fair value method, which is used for no significant influence. The amount paid for the stock, whether the acquisition was friendly or hostile, and whether the stock has paid dividends in past years are not relevant factors in determining the accounting method.

Question 4

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 asset account for Trading Securities on the balance sheet. It represents a decrease in the value of the trading securities and is used to reflect the securities' fair market value. It is not reported on the income statement, statement of retained earnings, or as an adjustment to stockholders' equity.

Question 5

All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except:

Accepted Answer

The ease of applying market values to assets and liabilities is not a factor contributing to the trend for regulators to adopt fair value concepts, as determining fair value can often be complex and subjective.

Question 6

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

Accepted Answer

Unrealized loss on available-for-sale securities is typically considered an "Other Comprehensive Income" item.

Question 7

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

Accepted Answer

Under the cost method, the carrying value of the investment remains the same unless the investor decides to adjust the carrying value for impairment, changes in fair value, or any other reason. The earnings and dividend distributions of the investee do not affect the carrying value of the investment under the cost method.

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...

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 includes all changes in equity during the period except those resulting from transactions with owners, such as issuing shares or paying dividends. This includes foreign currency items, unrealized gains and losses, pension liability adjustments, and other comprehensive income items.

Question 10

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

Trading securities are reported at fair value, with unrealized gains and losses recognized in the income statement. Therefore, a $2,000 loss should be reported on the income statement, and the securities should be valued at $11,000 on the balance sheet.

Question 11

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 original cost of the 500 shares is $19,250, which is equivalent to a cost per share of $38.50 ($19,250/500 shares). 
When 100 shares are sold for $35 per share, the total proceeds are $3,500 ($35 x 100 shares). However, since the cost per share is $38.50, the investor incurs a loss of $3.50 per share. 
Therefore, the total amount of loss on the sale is $350 ($3.50 x 100 shares).

Question 12

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 dividend yield, we divide the annual dividend per share by the market value per share and multiply the result by 100.

Annual dividend per share = $0.40
Market value per share = $16

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

Therefore, the correct answer is A, 2.5%.

Question 13

Held-to-Maturity securities

Accepted Answer

Held-to-Maturity securities are primarily purchased to earn interest revenue and are reported at their amortized cost on the balance sheet date. They only include bonds, not stocks. Therefore, options A and B are incorrect while option C is the best choice. Option D is incorrect because it includes option A and B, which are both incorrect.

Question 14

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, known as the parent company, has significant control over the operations and management of the other company, known as the subsidiary. The parent company consolidates the financial statements of the subsidiary into its own financial statements using the equity method of accounting.

Question 15

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

Accepted Answer

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

Question 16

All of the following are disadvantages of fair value use except:

Accepted Answer

Fair values can be used not only on balance sheet accounts but also on income statement accounts. Therefore, option D is incorrect. A, B, and C are all disadvantages of fair value use.

Question 17

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 18

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

Accepted Answer

Unrealized gains and losses on available-for-sale securities are reported in the equity section of the balance sheet under accumulated other comprehensive income, not in the income statement or retained earnings.

Question 19

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

Accepted Answer

Unrealized gains and losses on trading securities are reported on the income statement as part of other revenues and expenses because they reflect changes in the fair value of securities that are intended to be sold in the near term.

Question 20

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...

Quiz 15: Investments and Fair Value Accounting