Question 1

Gains and losses on the sale of investments appear as adjustments within the financing activities section of the statement of cash flows.

Accepted Answer

Gains and losses on the sale of investments appear as adjustments within the operating activities section of the statement of cash flows, not the financing activities section.

Question 2

Unrealized gains and losses on available-for-sale securities are reported on the balance sheet.

Accepted Answer

Unrealized gains and losses on available-for-sale securities are reported on the balance sheet as a component of other comprehensive income until they are realized through sale.

Question 3

Insider trading is considered unethical,but it is not illegal in the United States.

Accepted Answer

Insider trading is illegal in the United States under the Securities Exchange Act of 1934. Those who engage in insider trading can face both civil and criminal charges.

Question 4

For available-for-sale securities,an unrealized loss on long-term investments appears as part of other comprehensive income (loss)in the company's financial statements.

Accepted Answer

When a company holds available-for-sale securities, any unrealized gains or losses are recorded as part of other comprehensive income (loss) on their financial statements until the security is sold. This is in contrast to held-to-maturity securities which are recorded at amortized cost and any unrealized gains or losses are not recognized until the security is sold or impaired.

Question 5

Trading securities are valued on the balance sheet at market value.

Accepted Answer

Trading securities are considered as short-term investments and are valued at their current market value on the balance sheet. This means their value is adjusted to reflect changes in market value, and the unrealized gains or losses are recognized in the income statement.

Question 6

An influential but noncontrolling investment is defined as ownership of between 20 to 50 percent of the stock of another company.

Accepted Answer

Ownership of 20% to 50% of another company's stock typically indicates significant influence but not control, aligning with accounting standards for equity method investments.

Question 7

Investments with a maturity of less than ninety days are generally classified as cash equivalents.

Accepted Answer

This is true. Cash equivalents are highly liquid investments that can be easily converted to cash and have a maturity of less than ninety days. Examples include treasury bills, commercial paper, and money market funds.

Question 8

Another term for short-term investments is marketable securities.

Accepted Answer

Marketable securities are investments that can be easily bought and sold in the financial markets, making them a form of short-term investment.

Question 9

As long as an investment can be sold within a short period of time,it must be classified as a current asset.

Accepted Answer

An investment is classified as a current asset if it is expected to be converted into cash within one year or the operating cycle, whichever is longer, not just because it can be sold quickly.

Question 10

A noninfluential and noncontrolling investment is defined as ownership of less than 25 percent of the stock of another company.

Accepted Answer

The answer of A noninfluential and noncontrolling investment is defined...

Question 11

A controlling investment is defined as ownership of more than 50 percent of the stock of another company.

Accepted Answer

This is the definition of controlling investment according to accounting standards.

Question 12

An ownership interest of greater than 50 percent is required for an investor to have accounting control over an investee.

Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), an investor is considered to have accounting control over an investee if they have an ownership interest of more than 50 percent. This means they can control the financial and operating decisions of the investee and are required to consolidate the investee's financial statements with their own.

Question 13

Available-for-sale securities may only be classified as short-term investments.

Accepted Answer

Available-for-sale securities can be classified as either short-term or long-term depending on the management's intention to hold the securities for less than or more than a year.

Question 14

Investments are valued on the balance sheet at the original purchase price,even if the price has changed since the date of purchase.

Accepted Answer

Investments are typically valued on the balance sheet at fair market value, not the original purchase price, to reflect their current worth.

Question 15

It is not possible for one company to influence the operating policies of another company unless it owns more than a 50 percent interest in that company.

Accepted Answer

While owning a majority stake in a company can give one company significant influence over another, there are other ways in which companies can influence each other's operating policies, such as through partnerships, collaborations, and industry associations.

Question 16

An individual can be prosecuted by the SEC for insider trading whether or not that individual is employed by the company involved.

Accepted Answer

Insider trading laws apply to anyone who possesses material nonpublic information and uses it to trade securities, regardless of whether they are employed by the company involved.

Question 17

Held-to-maturity securities are always debt securities,and never equity securities.

Accepted Answer

Held-to-maturity securities refer to debt securities that a company intends to hold until maturity. Therefore, they are always debt securities and cannot be equity securities.

Question 18

Unless there is evidence to the contrary,an investor owning 35 percent of the stock of an investee is assumed to have significant influence.

Accepted Answer

According to accounting standards, owning 20-50% of the voting stock of an investee is presumed to give an investor significant influence. Therefore, owning 35% of the stock is within this range and the investor would be assumed to have significant influence, unless there is evidence to the contrary.

Question 19

Detailed information about a company's investments is never disclosed in the notes to the financial statements.

Accepted Answer

Detailed information about a company's investments is usually disclosed in the notes to the financial statements, including the type of investments, fair value, cost, and any movements in the investments during the period. However, some limited information may be redacted for strategic or competitive reasons.

Question 20

Unrealized gains and losses on trading securities appear on the income statement.

Accepted Answer

Unrealized gains and losses on trading securities are recognized on the income statement as they are considered temporary fluctuations in the value of investments.

Quiz 19: Accounting for Investments