68) All of the following are true about debt securities except:
A) They can be short-term investments.
B) They can be long-term investments.
C) They can have a cost higher than the maturity value.
D) They can have a cost lower than the maturity value.
E) They reflect an owner relationship.
69) At acquisition, debt securities are:
A) Recorded at their cost, plus total interest that will be received over the life of the security.
B) Recorded at the amount of interest that will be received over the life of the security.
C) Recorded at cost.
D) Not recorded, because no interest is due yet.
E) Recorded at cost plus the amount of dividend income to be received.
70) At the end of the accounting period, the owners of debt securities:
A) Must report the dividend income accrued on the debt securities.
B) Must retire the debt.
C) Must record a gain or loss on the interest income earned.
D) Must record a gain or loss on the dividend income earned.
E) Must record any interest earned on the debt securities during the period.
71) A company has an investment in 9% bonds with a par value of $100,000 that pays interest on
October 1 and April 1. The amount of interest accrued on December 31 (the company’s year-end)
would be:
A) $750.
B) $1,500.
C) $2,250.
D) $4,500.
E) $9,000.
72) Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000
shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. Roe’s
entry to record the receipt of these dividends is:
A) Debit Cash, $8,000; credit Long-Term Investments, $8,000.
B) Debt Long-Term Investment, $8,000; credit Cash, $8,000.
C) Debit Cash, $8,000; credit Dividend Revenue, $8,000.
D) Debit Unrealized Gain-Equity, $8,000; credit Cash, $8,000.
E) Debit Cash, $8,000; credit Interest Revenue, $8,000.
73) A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest
on March 1 and September 1. The amount of interest accrued on December 31 (the company’s
year-end) would be:
A) $1,000.
B) $500.
C) $1,250.
D) $2,500.
E) $1,500.
74) A company paid $37,800 to acquire 8% bonds with a $40,000 maturity value. The company
intends to hold the bonds to maturity. The cash proceeds the company will receive when the
bonds mature equal:
A) $37,800.
B) $38,325.
C) $40,000.
D) $40,525.
E) $43,200.
75) A company paid $37,800 cash to acquire stock investments with insignificant influence (with
a par value of $38,325). The correct entry to record the purchase of the investment is:
A) Debit Stock Investments $37,800; credit Cash $37,800.
B) Debit Stock Investments $38,325; credit Cash $38,325.
C) Debit Cash $40,000; credit Stock Investments $40,000.
D) Debit Stock Investments $37,800; debit Investment Expense $525; credit Cash $38,325.
E) Debit Stock Investments $37,800; debit Loss on Investment $525; credit Cash $38,325.
76) Kendall Corp. purchased at par value, $75,000 of Shrem Company’s 8% bonds that mature in
three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to
hold the bonds until they mature. When the bonds mature, Kendall should prepare the following
journal entry (assume the semiannual interest was separately recorded):
A) debit Long-Term Investments—HTM, $75,000; credit Cash, $75,000.
B) debit Cash, $6,000; credit, Unrealized Gain—Equity, $6,000.
C) debit Cash, $75,000; credit Debt Investments—HTM, $75,000.
D) debit Unrealized Gain—Equity, $6,000; credit Cash, $6,000.
E) debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.
77) Kendall Corp. purchased at par value, $160,000 of Barker Company’s 7% bonds that mature
in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to
hold the bonds until they mature. The journal entry to record Kendall’s purchase of the bonds is:
A) debit Debt Investments—HTM $160,000; credit Cash, $160,000.
B) debit Cash, $169,333; credit, Short-Term Investments—HTM $169,333.
C) debit Cash, $160,000; credit Short-Term Investments—HTM $160,000.
D) debit Long-Term Investments—HTM $160,000; credit Cash $160,000.
E) debit Cash, $160,000; credit Long-Term Investments—HTM $160,000.
78) Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and
are classified as a held-to-maturity security. Which of the following is the correct journal entry to
record the receipt of the usual semiannual interest payment?
A) debit Cash, $4,000; credit Long-Term Investments—HTM, $4,000.
B) debt Cash, $2,000; credit Long-Term Investments—HTM, $2000.
C) debit Cash, $2,000; credit Interest Revenue, $2,000.
D) debit Unrealized Gain—Equity, $2,000; credit Cash, $2,000.
E) debit Cash, $4,000; credit Unrealized Gain—Equity, $4,000.
79) Accounting for long-term investments in equity securities with controlling influence uses
the:
A) Controlling method.
B) Consolidation method.
C) Investor method.
D) Investment method.
E) Trading method.
80) The controlling investor of a long-term investment with controlling interest is called the:
A) Owner.
B) Subsidiary.
C) Parent.
D) Investee.
E) Senior entity.
81) The investee company in a long term investment with controlling interest is called the:
A) Owner.
B) Subsidiary.
C) Parent.
D) Creditor.
E) Senior entity.
82) A controlling influence over the investee is based on the investor owning voting stock
exceeding:
A) 10%.
B) 20%.
C) 30%.
D) 40%.
E) 50%.
83) Long-term investments cannot include:
A) Held-to-maturity debt securities.
B) Securities with maturity dates within three months.
C) Equity securities giving an investor insignificant influence over an investee.
D) Equity securities giving an investor significant influence over an investee.
E) Available-for-sale debt securities.
84) Consolidated financial statements:
A) Show the financial statements of all entities under the parent’s control, including all
subsidiaries.
B) Show the results of operations, cash flows, and the financial position of the parent only.
C) Show the results of operations, cash flows, and the financial position of the subsidiary only.
D) Include line items for investments in the subsidiaries on the balance sheet.
E) Do not include a balance sheet.
85) Comprehensive income includes all except:
A) Revenues and expenses reported in the income statement.
B) Dividends paid to shareholders.
C) Unrealized gains and losses on long-term available-for-sale securities.
D) All changes in equity for a period except those due to investments and distributions to
owners.
E) Gains and losses reported in the income statement.
86) Short-term investments in held-to-maturity debt securities are accounted for using the:
A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Cost method with amortization.
D) Cost method without amortization.
E) Equity method.
87) Long-term investments in held-to-maturity debt securities are accounted for using the:
A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Cost method without amortization.
D) Cost method with amortization.
E) Equity method.
88) The price of one currency stated in terms of another currency is called a(n):
A) Foreign exchange rate.
B) Currency transaction.
C) Historical exchange rate.
D) International conversion rate.
E) Currency rate.
89) All of the following statements relating to accounting for international operations are true
except:
A) Foreign exchange gains or losses can occur when accounting for international sales
transactions.
B) Gains and losses from foreign exchange transactions are accumulated in the Fair Value
Adjustment Account and are reported on the balance sheet.
C) Gains and losses from foreign exchange transactions are accumulated in the Foreign
Exchange Gain (or Loss) account.
D) The balance in the Foreign Exchange Gain (or Loss) account is reported on the income
statement.
E) Foreign exchange gains or losses can occur when accounting for international purchases
transactions.
90) Foreign exchange rates fluctuate due to changes in all but which of the following?
A) Political conditions.
B) Economic conditions.
C) Supply and demand for currencies.
D) Expectations of future events.
E) Whether the companies are considered multinational.
91) The currency in which a company presents its financial statements is known as the:
A) Multinational currency.
B) Price-level-adjusted currency.
C) Specific currency.
D) Reporting currency.
E) Historical cost currency.
92) If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3
Canadian dollars will buy ________ worth of U.S. dollars.
A) $0.2759
B) $0.82777
C) $1.82777
D) $2.48
E) $1.00
93) Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a
British company when the exchange rate was $1.97 per British pound. At the year-end balance
sheet date, the exchange rate increased to $2.76. If the liability is still unpaid at that time,
Kreighton must record a:
A) gain of $39,500.
B) loss of $39,500.
C) gain of $138,000.
D) loss of $138,000.
E) neither a gain nor loss.
94) Marshall Company sold supplies in the amount of €25,000 (euros) to a French company
when the exchange rate was $1.21 per euro. At the time of payment, the exchange rate decreased
to $0.82. Marshall must record a:
A) gain of $9,750.
B) gain of $20,500.
C) loss of $9,750.
D) loss of $20,500.
E) neither a gain nor loss.
95) Select the correct statement from the following:
A) Profit margin reflects a company’s ability to produce net sales from total assets.
B) Total asset turnover reflects the percent of net income in each dollar of net sales.
C) Return on total assets can be separated into the gross margin ratio and debt ratio.
D) A high return on total assets is desirable.
E) Analysis of return on total assets is not beneficial in evaluating profitability.
96) Cloverton Corporation had net income of $30,000, net sales of $1,000,000, and average total
assets of $500,000. Its return on total assets is:
A) 3%
B) 200%
C) 6%
D) 17%
E) 1.5%
97) Canberry Corporation had net income of $80,000, beginning total assets of $640,000 and
ending total assets of $580,000. Its return on total assets is:
A) 13.1%
B) 12.5%
C) 13.8%
D) 800%
E) 725%
98) A company has net income of $250,000, net sales of $2,000,000, and average total assets of
$1,500,000. Its return on total assets equals:
A) 12.5%.
B) 13.3%.
C) 16.7%.
D) 75.0%.
E) 600.0%.
99) A company had net income of $2,660,000, net sales of $25,000,000, and average total assets
of $8,000,000. Its return on total assets equals:
A) 3.01%.
B) 10.64%.
C) 32.00%.
D) 33.25%.
E) 300.75%.
100) A company had net income of $43,000, net sales of $380,500, and average total assets of
$220,000. Its profit margin and total asset turnover were, respectively:
A) 11.3%; 1.73.
B) 11.3%; 19.5.
C) 1.7%; 19.5.
D) 1.7%; 11.3.
E) 19.5%; 11.3.
101) A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total
assets was:
A) 5.71%
B) 8.66%
C) 12.34%
D) 13.61%
E) 19.32%
102) A company had net income of $40,000, net sales of $300,000, and average total assets of
$200,000. Its profit margin and total asset turnover were respectively:
A) 13.3%; 0.2.
B) 13.3%; 1.5.
C) 2.0%; 1.5.
D) 1.5%; 0.2.
E) 1.5%; 13.3.
103) Investments can be classified as all but which of the following:
A) Intangible investments.
B) Held-to-maturity debt securities.
C) Available-for-sale debt securities.
D) Stock investments with insignificant influence.
E) Trading debt securities.
104) Investments in debt securities that the company actively manages and trades for profit are
referred to as short-term debt investments in:
A) Available-for-sale securities.
B) Held-to-maturity securities.
C) Trading securities.
D) Realizable securities.
E) Liquid securities.
105) Investments in trading securities:
A) Include only equity securities.
B) Are reported as current assets.
C) Include debt and equity securities.
D) Are reported at their cost, no matter what their fair value.
E) Are long-term investments.
106) A decrease in the fair value of a security that has not yet been realized through an actual
sale of the security is called a(n):
A) Contingent loss.
B) Realizable loss.
C) Unrealized loss.
D) Capitalized loss.
E) Market loss.
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107) Held-to-maturity securities are:
A) Always classified as Short-Term Investments.
B) Always classified as Long-Term Investments.
C) Debt securities that a company intends and is able to hold to maturity.
D) Equity securities that a company intends and is able to hold to maturity.
E) Equity securities where significant influence involved.
108) Available-for-sale debt securities are:
A) Recorded at cost and remain at cost over the life of the investment.
B) Reported at historical cost, adjusted for the amortized amount of any difference between cost
and maturity value.
C) Reported at fair value on the balance sheet.
D) Intended to be held to maturity.
E) Always classified as Long-Term Investments.
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109) Carpark Services began operations in 20X1 and maintains long-term investments in
available-for-sale debt securities. The year-end cost and fair values for its portfolio of these debt
securities follows. The year-end adjusting entry to record the unrealized gain/loss at December
31, 20X1 is:
Cost
Fair Value
$
250,000
$
241,000
$
340,000
$
350,000
A) Debit Unrealized Gain – Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale
(LT) $9,000.
B) Debit Unrealized Loss – Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale
(LT) $9,000.
C) Debit Realized Loss – Income $9,000; Credit Fair Value Adjustment – Available-for-Sale
(ST) $9,000.
D) Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Loss –
Equity $9,000.
E) Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Gain –
Equity $9,000.