32) Which of the following is true of comprehensive income?
A) All items included in comprehensive income enter into the determination of net income.
B) Dividend payments are not included in the determination of comprehensive income, even though it
results in a decrease in total stockholders’ equity.
C) Comprehensive income includes company changes in total stockholders’ equity from all sources,
including owners’ investments.
D) Comprehensive income cannot be combined with a traditional income statement into a combined
statement of comprehensive income.
33) Jones Enterprises purchased a bond on August 31 of the current year for $250,000 and classified the
investment as an available-for–sale debt. The market value of the available-for-sale debt investment at
year-end is $255,000. The adjustment is ______.
A) subtracted from the Available-for-Sale Debt Investments account to arrive at the amount reported on
the balance sheet
B) recorded as a debit to Fair Value Adjustment – Available-for-Sale
C) recorded as a debit to Unrealized Holding Gain – Available-for-Sale
D) reported as a $5,000 unrealized holding gain in the income statement
34) For available-for-sale debt investments, state:
• Reporting method used
• How unrealized holding gain or loss is reported
• Balance sheet effects
• Income statement effects
Available-for-Sale Debt
Investments:
Reporting method used
How unrealized holding gain or
loss is reported
Balance sheet effects
Income statement effects
Investments:
Reporting method used
How unrealized holding gain or
loss is reported
Balance sheet effects
Income statement effects
36) When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet
date, the investment is reported as a current asset.
37) Held-to-maturity debt investments are normally reported at ________.
A) current market value
B) average cost
C) amortized cost
D) historical cost
38) Interest revenue earned on held-to-maturity debt investments is reported on the income statement in
the ________ section.
A) other income and expenses
B) current assets
C) operating income
D) noncontrolling interest
39) Equity investments with no significant influence must be adjusted at the end of the year and reported
at fair value.
40) For equity investments with no significant influence, the unrealized holding gain or loss is reported as
a component of stockholders‘ equity.
41) At the beginning of the year, Wilson Steel, Inc. purchased 10,000 shares of Barnes Metals, Inc. for
$34,000 in exchange for cash and now holds 3.2% of the voting stock of Barnes Metals, Inc. The
management of Wilson Steel intends to hold this stock for two years. Assuming no other transaction
happened during the year, the ________ in the balance sheet will increase.
A) long-term assets
B) cash
C) total assets
D) current assets
42) Which of the following is the major difference between the accounting for equity securities and debt
securities?
A) Debt securities are classified as liabilities, while equity securities are classified as assets.
B) Debt securities are classified as trading debt investments, while equity securities are classified as held–
to-maturity equity investments.
C) Debt securities earn interest revenue, while equity securities may earn dividend revenue.
D) Debt securities of all types have a maturity date, while only a few equity securities have a maturity
date.
43) For no significant influence equity investments, provide the following:
a. Accounting method:
b. Balance Sheet effects:
c. Income Statement effects:
1) The rate of return on total assets is a ratio that measures a company’s success in using its assets to earn
income.
2) The rate of return on total assets is calculated by first subtracting interest expense from net income and
then dividing the result by average total assets.
3) A company can finance its assets by receiving cash or other assets from stockholders.
4) Creditors invest in a company and hope to receive a return on their investment.
5) A 9% rate of return on total assets means that the company earned $0.09 for each $1.00 invested in the
company’s average long-term assets.
6) The rate of return on total assets measures a company’s ________.
A) ability to meet its short-term obligations
B) ability to repay its long-term debt
C) success in using assets to earn income
D) success in earning high returns on investments in stocks and bonds of other companies
7) Which of the following is the correct formula for calculating rate of return on total assets?
A) (Net income + Interest expense) / Average total assets
B) (Net income – Interest expense) / Average total asset
C) (Net income – Interest expense) / Total assets
D) Total equity / Total assets
8) Metro Services, Inc. reported the following information for the year 2019. Based on the following
information, calculate the rate of return on total assets for Metro Services, Inc. (Round the percentage to
two decimal places.)
Total Assets, December 31, 2019
$599,000
Total Assets, December 31, 2018
$505,000
For Year Ended December 31, 2019:
Interest Expense
$27,900
Net Income
$67,100
A) 11.20%
B) 7.78%
C) 17.21%
D) 7.10%
9) Based on the following information for Montana Investments, Inc., compute the rate of return on total
assets. (Round the percentage to two decimal places.)
Total Assets, December 31, 2019
$191,000
Total Assets, December 31, 2018
$149,000
For Year Ended December 31, 2019:
Interest Expense
$15,000
Net Income
$18,000
A) 9.42%
B) 19.41%
C) 9.71%
D) 1.76%
10) Hometown Resources, Inc. has a 9% rate of return on total assets and the industry average is 12%.
How was the 9% rate of return on total assets computed? Comment on this information.
11) LLL Company reported the following items on its 2019 financial statements:
Total Assets, June 30, 2019
$ 60,000
Total Assets, June 30, 2018
64,000
For Year Ended June 30, 2019
Interest Expense
1,200
Net Income
4,000
Requirement:
a. Determine LLL’s rate of return on total assets for 2019. Label your work and show computations.
b. What does the rate of return on total assets mean? Discuss your findings for LLL.