1. One of the primary reasons for investing in equity securities includes:
2. One of the primary reasons for investing in debt securities includes:
3. Which of the following is true with regard to how to account for company A’s investment
4. Libby Company purchased equity securities for $100,000 and classified them as trading
securities. At the end of the year, the fair value of the securities was $105,000. How should
the investment be reported in the year-end financial statements?
5. Libby Company purchased equity securities for $100,000 and classified them as available-
for-sale securities. At the end of the year, the fair value of the securities was $105,000. How
6. Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per
share. The investment is properly classified as a trading security. By the end of the year, the
stock price has increased to $32 per share. How would the change in stock price affect Sports
Spectacular’s net income?
7. Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per
share. The investment is properly classified as an available-for-sale security. By the end of the
year, the stock price has increased to $32 per share. How would the change in stock price
affect Sports Spectacular’s net income?
8. The primary difference in accounting for available-for-sale securities and accounting for
trading securities is:
9. On January 1, 2012, Gilman Company purchased 10,000 of the 200,000 shares of common
stock of Burke Corporation at $40 per share as a long-term investment. The records of Burke
Corporation showed the following at December 31, 2012:
What amount should Gilman Company report in its December 31, 2012, balance sheet for its
investment in Burke?
10. When the equity method of accounting for investments is used by the investor, the
Investments account increases when:
11. When using the equity method to account for an investment, cash dividends received by
the investor from the investee should be recorded:
12. The equity method of accounting for investments in voting common stock is appropriate
when:
13. Sports Spectacular purchased 100,000 shares of stock in The Athletic Warehouse for $30
per share. The investment is properly recorded using the equity method. By the end of the
year, the stock price has increased to $32 per share. How would the change in stock price
affect Sports Spectacular’s net income under the equity method?
14. On January 1, 2012, Gilman Company purchased 10,000 of the 40,000 shares of common
stock of Burke Corporation at $40 per share as a long-term investment. Gilman can exercise
significant influence over Burke and properly records the investment using the equity method.
The records of Burke Corporation showed the following at December 31, 2012:
What amount should Gilman Company report in its December 31, 2012, balance sheet for its
investment in Burke?
15. Consolidated financial statements are prepared when one company has:
16. Which of the following investment securities held by Zoogle Inc. may be classified as
held-to-maturity securities in its balance sheet?
17. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
GIC purchased the bonds:
18. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
GIC purchased the bonds for:
19. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Recording the bond purchase would have what effect on the financial statements?
20. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
The investment in bonds has a maturity in:
21. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
What is the annual market interest rate on the bonds?
22. General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
GIC sells the bonds for $196,000 immediately after the interest payment on 12/31/12. What
gain or loss, if any, would GIC record on this date?
23. Companies with large expansion plans, called growth companies, prefer to reinvest
earnings in the growth of the company rather than distribute earnings back to investors in the
form of cash dividends.
24. Seasonal refers to the revenue activities of a company varying based on the time (or
season) of the year.
25. When insignificant influence exists, the investment should be accounted for by the equity
method.
26. When significant influence exists, the investment should be accounted for by the equity
method.
27. When the investor has insignificant influence, the receipt of cash dividends is recorded as
dividend revenue.
28. Investments are reported at fair value when a company has an insignificant influence over
another company in which it invests.
29. Unrealized gains and losses from changes in the fair value of available-for-sale securities
are reported as part of current net income.
30. Unrealized gains and losses from changes in the fair value of trading securities are
reported as part of current net income.
31. Gains and losses on the sale of equity investments are recorded in the income statement as
part of net income.
32. The statement of comprehensive income is a statement in which we report all changes in
stockholders’ equity other than investment by stockholders and payment of dividends.
33. The statement of comprehensive income is a statement that includes net income plus
investment by stockholders less payment of dividends.