51) A company purchased bonds on July 1, 2021, for $94,352. This price represents a market rate
of 6% on bonds that have a face amount of $100,000, have a stated rate of 5%, pay semiannual
interest, and mature in 7 years. As of December 31, 2021, the fair value of the bonds has increased
to $95,000. Assuming the investment is classified as trading securities, calculate the unrealized
holding gain or loss recognized in the income statement in 2021.
A) $648 gain.
B) $317 gain.
C) $5,000 loss.
D) No gain or loss is recognized in the income statement.
52) A company purchased bonds on July 1, 2021, for $94,352. This price represents a market rate
of 6% on bonds that have a face amount of $100,000, have a stated rate of 5%, pay semiannual
interest, and mature in 7 years. As of December 31, 2021, the fair value of the bonds has increased
to $95,000. Assuming the investment is classified as available-for-sale securities, calculate the
unrealized holding gain or loss recognized in the income statement in 2021.
A) $648 gain.
B) $317 gain.
C) $5,000 loss.
D) No gain or loss is recognized in the income statement.
53) A company purchased bonds on July 1, 2021, for $419,908. This price represents a market rate
of 6% on bonds that have a face amount of $400,000, have a stated rate of 7%, pay semiannual
interest, and mature in 6 years. As of December 31, 2021, the fair value of the bonds is $418,000.
In early 2022, the company sells the investment for $417,500. Assuming the investment is
classified as trading securities, calculate the gain or loss on the sale to be reported in the income
statement in 2022 (ignore any amortization in 2022).
A) $500 gain.
B) $1,005 gain.
C) $1,005 loss.
D) $500 loss.
54) A company purchased bonds on July 1, 2021, for $419,908. This price represents a market rate
of 6% on bonds that have a face amount of $400,000, have a stated rate of 7%, pay semiannual
interest, and mature in 6 years. As of December 31, 2021, the fair value of the bonds is $418,000.
In early 2022, the company sells the investment for $417,500. Assuming the investment is
classified as available-for-sale securities, calculate the gain or loss on the sale to be reported in the
income statement in 2022 (ignore any amortization in 2022).
A) $500 gain.
B) $1,005 gain.
C) $1,005 loss.
D) $500 loss.
55) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
GIC purchased the bonds:
A) At par.
B) At a discount.
C) At a premium.
D) Cannot be determined from the given information.
56) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
GIC purchased the bonds for:
A) $200,000.
B) $194,758.
C) $242,000.
D) Cannot be determined from the given information.
57) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
Recording the bond purchase would have what effect on the financial statements?
A) Increase assets.
B) Increase liabilities.
C) Increase assets and liabilities.
D) No effect on total assets and total liabilities.
58) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
The investment in bonds has a maturity in:
A) Two years.
B) Three years.
C) Six years.
D) Cannot be determined from the given information.
59) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
What is the annual market interest rate on the bonds?
A) 4%.
B) 3.5%.
C) 7%.
D) 8%.
60) General Investment Co. (GIC) purchased bonds on January 1, 2021. GIC’s accountant has
projected the following amortization schedule from purchase until maturity:
Date
Cash Received
Interest
Revenue
Amortization of
Discount
Amortized
Cost
1/1/2021
$
194,758
6/30/2021
$
7,000
$
7,790
$
790
195,548
12/31/2021
7,000
7,822
822
196,370
6/30/2022
7,000
7,855
855
197,225
12/31/2022
7,000
7,889
889
198,114
6/30/2023
7,000
7,925
925
199,039
12/31/2023
7,000
7,961
961
200,000
GIC sells the bonds for $196,000 immediately after the interest payment on 12/31/21. What gain or
loss, if any, would GIC record on this date?
A) No gain or loss.
B) $370 loss.
C) $4,000 loss.
D) $4,000 gain.
29
Listed below are five terms with a list of phrases that describe or characterize the terms. Match
each phrase with the best term.
A) Consolidated financial statements
B) Available-for-sale securities
C) Trading securities
D) Held-to-maturity securities
E) Equity method
61) Used when an investor is presumed to have controlling influence through an equity
investment.
Difficulty: 2 Medium
Topic: Equity Investments with Insignificant Influence; Equity Investments with Significant
Influence; Equity Investments with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
62) Debt securities that a company expects to hold until they mature.
Difficulty: 2 Medium
Topic: Equity Investments with Insignificant Influence; Equity Investments with Significant
Influence; Equity Investments with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
63) Debt investments held for reasons other than attempting to profit from trading in the near
future
Difficulty: 2 Medium
Topic: Equity Investments with Insignificant Influence; Equity Investments with Significant
Influence; Equity Investments with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
30
64) Used when an investor is presumed to have significant influence through an equity investment.
Difficulty: 2 Medium
Topic: Equity Investments with Insignificant Influence; Equity Investments with Significant
Influence; Equity Investments with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
65) Debt investments that the investor expects to sell (trade) in the near future.
Difficulty: 2 Medium
Topic: Equity Investments with Insignificant Influence; Equity Investments with Significant
Influence; Equity Investments with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
31
Listed below are five terms with a list of phrases that describe or characterize the terms. Match
each phrase with the best term.
A) Equity method
B) Consolidated financial statements
C) Fair value method
D) Trading securities
E) Held-to-maturity securities
66) Debt security that is recorded at amortized cost.
Difficulty: 2 Medium
Topic: Equity Securities with Insignificant Influence; Equity Securities with Significant
Influence; Equity Securities with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
67) An investor owns 40% of the common voting shares in the company and can exercise
significant influence.
Difficulty: 2 Medium
Topic: Equity Securities with Insignificant Influence; Equity Securities with Significant
Influence; Equity Securities with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
68) Investor owns 2% of the outstanding shares of another company’s common voting shares.
Difficulty: 2 Medium
Topic: Equity Securities with Insignificant Influence; Equity Securities with Significant
Influence; Equity Securities with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
32
69) An investor owns over 50% of the common voting shares in the company.
Difficulty: 2 Medium
Topic: Equity Securities with Insignificant Influence; Equity Securities with Significant
Influence; Equity Securities with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
70) Debt investments that the investor expects to sell (trade) in the near future.
Difficulty: 2 Medium
Topic: Equity Securities with Insignificant Influence; Equity Securities with Significant
Influence; Equity Securities with Controlling Influence; Debt Investments
Learning Objective: D-02 Account for investments in equity securities when the investor has
insignificant influence.; D-03 Account for investments in equity securities when the investor has
significant influence.; D-04 Account for investments in equity securities when the investor has
controlling influence.; D-05 Account for investments in debt securities.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking