Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) A company’s investments in stock or bonds cannot include the acquisition of an entire company.
2) Just as individuals invest in a variety of companies’ stocks and bonds, the same is true for businesses.
3) The owner of a bond or stock of a corporation is referred to as the investor.
4) A preferred stock is an example of a debt security.
5) An equity security does not represent an ownership interest in a corporation, although it pays
dividends.
6) Debt securities represent a credit relationship with another company or governmental entity.
7) A security is a share or interest representing financial value.
8) Debt securities do not include U.S. government securities.
9) Securities are represented by a certificate and are commonly traded on an exchange.
10) An equity security represents a credit relationship with another company or governmental entity.
11) An investor is the corporation that issued the bond or stock to the investee.
12) Investments in equity securities are classified into three specific types based on the investor’s level of
influence over the investee company.
13) A security is a ________.
A) regulation dealing with the transactions of investments
B) system aimed at protecting the interests of the market participants
C) share or interest representing financial value
D) process related to the valuation of a financial instrument
14) Securities are ________.
A) commonly traded on an exchange
B) assets traded between companies working in the same industry
C) owned by the investee
D) always considered to be long-term investments
15) A(n) ________ is represented by a certificate and is commonly traded on an exchange.
A) inventory
B) investee
C) interest
D) security
16) Which of the following is NOT an example of a security?
A) preferred stock
B) municipal bond
C) Treasury bills
D) All are examples of a security.
17) A debt security ________.
A) represents a credit relationship with another company or governmental entity, and typically pays
interest for a fixed period
B) represents stock ownership in another company and sometimes pays dividends
C) is a standardized contract between two parties to buy or sell an underlying security at a
predetermined price on a specific date
D) is a cash market transaction in which the ownership of the underlying asset is deferred until a specific
date
18) Which of the following is true of the comparison between equity securities and debt securities?
A) Debt securities represent stock ownership in a company whereas equity securities represent a credit
relationship with the company.
B) Equity securities may earn dividend revenue whereas debt securities earn interest revenue.
C) Neither debt securities nor equity securities mature at a stated date.
D) Both debt securities and equity securities pay interest.
19) Which of the following is true of debt securities?
A) Debt securities entitle the holder to receipt of a share of profit in the form of dividends.
B) Debt securities typically pay interest for a fixed period.
C) Debt securities include preferred stocks.
D) Debt securities represent ownership interests of the investors.
20) Which of the following is an example of debt securities?
A) preferred stocks
B) real estate
C) common stocks
D) corporate bonds
21) Treasury bills are ________.
A) investments that pay cash dividends
B) equity securities
C) U. S. government debt securities
D) a credit relationship with another company
22) Which of the following may pay dividends?
A) preferred stock
B) investors
C) Treasury bills
D) notes payable
23) An equity security ________.
A) represents a credit relationship with another company or governmental entity
B) is a standardized contract between two parties to acquire various forms of investments
C) represents stock ownership in another company and sometimes pays dividends
D) is a financial instrument that entitles the holder to receive periodic interest
24) A(n) ________ represents stock ownership in another company and sometimes pays dividends.
A) debt security
B) Treasury bill
C) corporate bond
D) equity security
25) A ________ is an example of equity securities.
A) preferred stock
B) municipal bond
C) corporate bond
D) Treasury bill
26) Which of the following securities pay dividends?
A) corporate bonds
B) common stocks
C) debt securities
D) Treasury bills
27) Which of the following securities typically pay interest?
A) equity securities
B) preferred stocks
C) corporate bonds
D) significant interest investment
28) Regarding debt securities, which of the following statements is incorrect?
A) Debt securities include Treasury bills.
B) Debt securities represent a credit relationship with another company or governmental entity.
C) Debt securities typically pay interest for a fixed period.
D) Debt securities include common and preferred stock.
29) Investment income may come from interest earned from debt investments, dividends earned from
stock investments, and/or increases in the market value of the security.
30) Which of the following is the least desirable business reason for a company to invest in debt or equity
securities?
A) to generate investment income
B) to invest short–term, excess cash
C) to pursue certain business strategies
D) to weaken the relationship between the investing company and a key vendor.
31) A company may invest in debt or equity securities of other companies to ________.
A) further enhance a business relationship with a key vendor
B) invest borrowed money in an effort to decrease the company’s net income
C) weaken the relationship between the investing company and one of its vendors
D) allow the company to use investment income to decrease its annual dividend
32) In considering whether a company should invest in debt or equity securities of another company,
which of the following statements is incorrect?
A) The company wants to make the best use of its excess cash to generate investment income.
B) Investment income consists of interest earned from equity securities and dividends earned from debt
investments.
C) Investment income includes increases in the market value of debt or equity securities.
D) The excess cash that can be invested could be the result of temporary or seasonal business fluctuations.
33) List and discuss two common reasons why companies invest in debt or equity securities.
34) Short-term investments are investments in debt and equity securities that the investor intends to hold
for longer than one year.
35) Trading debt investments are categorized as noncurrent assets.
36) Depending on the maturity date, held-to-maturity debt investments are categorized as current assets
or long-term assets on the balance sheet.
37) Long-term investments include debt and equity securities that the investor expects to hold longer
than one year or debt or equity securities that are not readily marketable.