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Appendix D - Investments
Copyright Cengage Learning. Powered by Cognero.
Page 21
DATE MODIFIED:
7/22/2017 5:16 PM
52. Which of the following statements is not a reason a company may purchase another company's stock?
a.
earning a return on excess cash
b.
sustain the other company's stock price
c.
gaining control of another company's operations
d.
developing or maintaining business relationships
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
53. The fair value method of accounting for stock
a.
recognizes dividends as income
b.
is only appropriate as part of a consolidation
c.
requires the investment be increased by the reported net income of the investee
d.
requires the investment be decreased by the reported net income of the investee
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 4:07 PM
54. An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for
$49.50 per share. What is the amount of gain or loss on the sale?
a.
$12,750 gain
b.
$600 gain
c.
$600 loss
d.
$9,250 loss
ANSWER:
b
RATIONALE:
Gain on sale = Proceeds from sale – Purchase price = ($49.50 × 100) – (($21,750 /
500) × 100) = $4,950 – $4,350 = $600
POINTS:
1
Appendix D - Investments
Copyright Cengage Learning. Powered by Cognero.
Page 23
accounted for as a debit to Cash and a credit to
a.
Investment in Vallerio Corporation Stock
b.
Retained Earnings
c.
Dividend Revenue
d.
Dividend Receivables
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
58. The method of accounting for investments in equity securities in which the investor records its share of periodic net
income of the investee is the
a.
fair value method
b.
market method
c.
income method
d.
equity method
ANSWER:
d
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 4:10 PM
59. When shares of stock held as an investment are sold, the difference between the proceeds and the balance of the
investment account is recorded as a(n)
a.
prior period adjustment
b.
operating income and losses
c.
paid-in capital addition
d.
gain or loss
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
Bloom's: Remembering
QUESTION TYPE:
Multiple Choice
Appendix D - Investments
Copyright Cengage Learning. Powered by Cognero.
Page 25
entry would Blanton Corporation use to record the dividends it receives?
a.
debit Investment in Worton Corporation; credit Cash
b.
debit Cash; credit Dividend Revenue
c.
debit Investment in Worton Corporation; credit Income of Worton Corporation
d.
debit Cash; credit Investment in Worton Corporation
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
63. Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term
investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal
entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?
a.
debit Investment in Worton Corporation Stock; credit Cash
b.
debit Cash; credit Dividend Revenue
c.
debit Investment in Worton Corporation Stock; credit Income of Worton Corporation
d.
debit Cash; credit Investment in Worton Corporation Stock
ANSWER:
d
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
64. Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this
investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a
a.
credit to cash for $9,000
b.
debit to the investment account for $9,000
c.
credit to the investment account for $9,000
d.
credit to a loss account for $9,000
ANSWER:
c
RATIONALE:
Loss on investment in Tomas Corporation = $20,000 × 45% = $9,000
Debit
Credit
Loss on
9,000
Copyright Cengage Learning. Powered by Cognero.
Page 30
74. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage
fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for
$28 per share less a $160 brokerage fee. The journal entry for the sale under the fair value method would include a
a.
debit to Cash, $111,840
b.
credit to Investments, $112,000
c.
credit to Loss on Sale, $23,680
d.
debit to Cash, $112,000
ANSWER:
a
RATIONALE:
Proceeds on sale of Lucas stock = ($28 × 4,000) – $160 = $111,840
Debit
Credit
Cash
111,840
Investments—Lucas Company Stock
111,840
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 4:14 PM
75. If one company owns more than 50% of the common stock of another company
a.
a partnership exists
b.
a parent-subsidiary relationship exists
c.
the company whose stock is owned must be liquidated
d.
the fair value method should be used to account for the investment
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
Bloom's: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:16 PM
DATE MODIFIED:
10/9/2017 4:15 PM
76. Held-to-maturity securities
a.
are reported at fair value
b.
include stocks as well as bonds
