Appendix D – Investments
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Page 11
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
ACCT.AICPA.FN.04 – Reporting
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
31. In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited
to the account Valuation Allowance for Trading Investments.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
10/9/2017 5:34 PM
32. Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
ACCT.AICPA.FN.04 – Reporting
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
33. Temporary investments
Appendix D – Investments
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Page 12
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
34. Which of the following is not a reason to invest excess cash in temporary investments?
a.
earn interest revenue
b.
influence the operations of another company
c.
receive dividends
d.
realize gains from the increase in market value of the securities
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
35. The primary objectives of investing in temporary investments is to
a.
all of these
b.
realize gains from increases in market price of the securities
c.
receive dividends
d.
earn interest revenue
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
Appendix D – Investments
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Page 14
ANSWER:
b
RATIONALE:
Total cost of treasury bonds = Cost of treasury bonds + Brokerage commission =
$50,000 + $500 = $50,500
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
39. On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The
bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be
recorded on July 1?
a.
$400
b.
$406
c.
$2,000
d.
$2,400
ANSWER:
a
RATIONALE:
Interest revenue recorded on July 1 = Semiannual interest received on July 1 –
Accrued interest till June 1 = ( $40,000 × (12% / 2)) – ($40,000 × (12% / 2) × (150 /
180)) = $2,400 – $2,000 = $400
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
40. Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond
interest rate is 8% and interest is paid semiannually. The journal entry to record the purchase would be
a.
debit Investment—Evans Company Bonds, $101,500; credit Cash, $101,500
b.
debit Investment—Evans Company Bonds, $100,000; credit Interest Revenue, $1,500, and Cash, $98,500
c.
debit Investment—Evans Company Bonds, $100,000, and Interest Receivable $1,500; credit Cash $101,500
d.
debit Investment—Evans Company Bonds, $100,000; credit Cash $100,000
ANSWER:
c
RATIONALE:
Debit
Credit
Investment—Evans Company
Bonds
100,000
Appendix D – Investments
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Page 16
d.
debit Cash, $105,000; credit Investment—Evans Company Bonds, $100,000, Gain on Sale of Investments,
$4,500, and Interest Revenue, $500
ANSWER:
d
RATIONALE:
Gain on sale of investments = Sale price of the bonds – Purchase price of the bonds =
$104,500 – $100,000 = $4,500
Debit
Credit
Cash
105,000
Investment—Evans Company Bonds
100,000
Gain on Sale of Investments
4,500
Interest Revenue
500
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
43. Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on
March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the
purchase of the bonds would include a
a.
debit to Interest Receivable for $2,000
b.
debit to Investment in Bonds for $202,000
c.
debit to Cash for $200,000
d.
credit to Interest Revenue for $2,000
ANSWER:
a
RATIONALE:
Debit
Credit
Investments—Kennedy Company
Bonds
200,000
Interest Receivable
2,000
Cash
202,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
7/22/2017 5:16 PM
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Page 17
44. On April 1, Alliance Company purchased $50,000 of Tetter Company’s 12% bonds at 100 plus accrued interest of
$2,000. On June 30, Alliance received its first semiannual interest. On February 1, Alliance sold $40,000 of the bonds at
103 plus accrued interest. The journal entry Alliance will record on April 1 for the purchase of the bonds will include a
a.
credit to Interest Payable for $2,000
b.
debit to Investments—Tetter Company Bonds for $52,000
c.
debit for Cash of $50,000
d.
debit to Investments—Tetter Company Bonds for $50,000
ANSWER:
d
RATIONALE:
Debit
Credit
Investments—Tetter Company Bonds
50,000
Interest Receivable
2,000
Cash
52,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
10/9/2017 5:35 PM
On May 1, Pierce Company purchased $60,000 of Stanton Company’s 12% bonds at 100 plus accrued interest of $2,400.
On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus
accrued interest.
45. The journal entry Pierce will record on June 30 will include a
a.
credit to Interest Revenue for $2,400
b.
debit to Cash for $3,600
c.
credit to Cash for $2,400
d.
credit to Interest Receivable for $1,200
ANSWER:
b
RATIONALE:
Semiannual interest payment = $60,000 × 12% × 1/2 = $3,600
Interest revenue = Semiannual interest payment – Accrued interest = $3,600 – $2,400
= $1,200
Debit
Credit
Cash
3,600
Interest Receivable
2,400
Interest Revenue
1,200
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
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Page 20
50. Which of the following stock investments should be accounted for using the fair value method?
a.
investments of less than 20%
b.
investments between 20% and 50%
c.
investments of less than 20% and investments between 20% and 50%
d.
all stock investments should be accounted for using the fair value method
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
10/9/2017 4:06 PM
51. Jarvis Corporation makes an investment in 100 shares of Saxton Company’s common stock. The stock is purchased for
$45 a share plus brokerage fees of $280. The entry for the purchase is
a.
Cash 4,500
Investments—Saxton Company Stock 4,500
b.
Investments—Saxton Company Stock 4,780
Cash 4,780
c.
Investments—Saxton Company Stock 4,500
Brokerage Fee Expense 280
Cash 4,780
d.
Investments—Saxton Company Stock 4,500
Cash 4,500
ANSWER:
b
RATIONALE:
Total investment = Purchase price of stock + Brokerage fees = ($45 × 100) + $280 =
$4,500 + $280 = $4,780
Debit
Credit
Investment—Saxton Company Stock
4,780
Cash
4,780
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 – Corporate Investments Accounting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM