NEW
Font size
WorksheetsInvestment Financial Accounting II
Total questions: 20
Worksheet time: 6mins
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.”
The equity method of accounting for long-term invest
ments in stock should be used when the investor has
significant influence over an investee and owns:
(a) between 20% and 50% of the investee’s common
stock.
(b) 20% or more of the investee’s common stock.
(c) more than 50% of the investee’s common stock.
(d) less than 20% of the investee’s common stock.
Assume that Horicon Corp. acquired 25% of the com
mon stock of Sheboygan Corp. on January 1, 2017,
for $300,000. During 2017, Sheboygan Corp. reported
net income of $160,000 and paid total dividends of
$60,000. If Horicon uses the equity method to account
for its investment, the balance in the investment
account on December 31, 2017, will be:
(a) $300,000.
(b) $325,000.
(c) $400,000.
(d) $340,000.
Using the information in Question 6, what entry
would Horicon make to record the receipt of the divi
dend from Sheboygan?
(a) Debit Cash and credit Revenue from Stock Invest
ments.
(b) Debit Cash Dividends and credit Revenue from
Stock Investments.
(c) Debit Cash and credit Stock Investments.
(d) Debit Cash and credit Dividend Revenue.
You have a controlling interest if:
(a) you own more than 20% of a company’s stock.
(b) you are the president of the company
(c) you use the equity method.
(d) you own more than 50% of a company’s stock.
Which of the following statements is false? Consoli
dated financial statements are useful to:
(a) determine the profi tability of specifi c subsidiaries.
(b) determine the total profi tability of companies
under common control.
(c) determine the breadth of a parent company’s
operations.
(d) determine the full extent of total obligations of
companies under common control.
At the end of the fi rst year of operations, the total cost
of the trading securities portfolio is $120,000. Total
fair value is $115,000. The financial statements should
show:
(a) a reduction of an asset of $5,000 and a realized
loss of $5,000.
(b) a reduction of an asset of $5,000 and an unreal
ized loss of $5,000 in the stockholders’ equity sec
tion.
(c) a reduction of an asset of $5,000 in the current
assets section and an unrealized loss of $5,000 in
“Other expenses and losses.”
(d) a reduction of an asset of $5,000 in the current
assets section and a realized loss of $5,000 in
“Other expenses and losses.”
At December 31, 2017, the fair value of available-for
sale securities is $41,300 and the cost is $39,800. At
January 1, 2017, there was a credit balance of $900 in
the Fair Value Adjustment—Available-for-Sale account.
The required adjusting entry would be:
(a) Debit Fair Value Adjustment—Available-for-Sale
for $1,500 and credit Unrealized Gain or Loss—
Equity for $1,500.
(b) Debit Fair Value Adjustment—Available-for-Sale
for $600 and credit Unrealized Gain or Loss—
Equity for $600.
(c) Debit Fair Value Adjustment—Available-for-Sale
for $2,400 and credit Unrealized Gain or Loss—
Equity for $2,400.
(d) Debit Unrealized Gain or Loss—Equity for $2,400
and credit Fair Value Adjustment—Available-for
Sale for $2,400.
If a company wants to increase its reported income by
manipulating its investment accounts, which should
it do?
(a) Sell its “winner” trading securities and hold its
“loser” trading securities.
(b) Hold its “winner” trading securities and sell its
“loser” trading securities.
(c) Sell its “winner” available-for-sale securities and
hold its “loser” available-for-sale securities.
(d) Hold its “winner” available-for-sale securities and
sell its “loser” available-for-sale securities.
In the balance sheet, a debit balance in Unrealized
Gain or Loss—Equity is reported as a(n):
(a) increase to stockholders’ equity.
(b) decrease to stockholders’ equity.
(c) loss in the income statement.
(d) loss in the retained earnings statement.
Short-term debt investments must be readily market
able and expected to be sold within:
(a) 3 months from the date of purchase.
(b) the next year or operating cycle, whichever is
shorter.
(c) the next year or operating cycle, whichever is
longer.
(d) the operating cycle.
