Investment Financial Accounting II

Pension funds and banks regularly invest in debt and stock

securities to:

• house excess cash until needed.

• generate earnings.

• meet strategic goals.

• avoid a takeover by disgruntled investors.

An event related to an investment in debt securities that

does not require a journal entry is:

• acquisition of the debt investment.

• receipt of interest revenue from the debt investment.

• a change in the name of the firm issuing the debt securities.

• sale of the debt investment.

When bonds are sold, the gain or loss on sale is the

difference between the:

• sales price and the cost of the bonds.

• net proceeds and the cost of the bonds.

• sales price and the market value of the bonds.

• net proceeds and the market value of the bonds.

Under the equity method, the investor records dividends

received by crediting:

• Dividend Revenue.

• Investment Income.

• Revenue from Investment.

• Stock Investments.

Marketable securities bought and held primarily for sale

in the near term are classified as:

• available-for-sale securities.

• held-to-maturity securities.

• stock securities.

• trading securities

An unrealized loss on available-for-sale securities is:

• reported under Other Expenses and Losses in the

  income statement.

• closed-out at the end of the accounting period.

• reported as a separate component of stockholders'

  equity.

• deducted from the cost of the investment.

Which of the following is not a primary reason why

corporations invest in debt and equity securities?

• (a) They wish to gain control of a competitor.

• (b) They have excess cash.

• (c) They wish to move into a new line of business.

• (d) They are required to by law.

Debt investments are initially recorded at:

• (a) cost.

• (b) cost plus accrued interest.

• (c) fair value.

• (d) face value.

Hanes Company sells debt investments costing

$26,000 for $28,000. In journalizing the sale, credits

are to:

• (a) Debt Investments and Loss on Sale of Debt Invest

  ments.

• (b) Debt Investments and Gain on Sale of Debt Invest

  ments.

• (c) Stock Investments and Gain on Sale of Stock

  Investments.

• (d) No correct answer is given.

Pryor Company receives net proceeds of $42,000 on

the sale of stock investments that cost $39,500. This

transaction will result in reporting in the income

statement a:

• (a) loss of $2,500 under “Other expenses and losses.”

• (b) loss of $2,500 under “Operating expenses.”

• (c) gain of $2,500 under “Other revenues and gains.”

• (d) gain of $2,500 under “Operating revenues.”