Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
63. All of the following statements regarding equity securities are true except:
A. Equity securities should be recorded at cost when acquired.
B. Equity securities are valued at fair value if classified as trading securities.
C. Equity securities are valued at fair value if classified as significant influence securities.
D. Equity securities are valued at fair value if classified as available-for-sale securities.
E. Equity securities classified as available-for-sale record the dividend revenue when
received.
64. Debt securities:
A. Can be short-term investments.
B. Can be long-term investments.
C. Can have a cost higher than the maturity value of the debt security.
D. Can have a cost lower than the maturity value of the debt security.
E. All of the choices describe a debt security.
65. At acquisition, debt securities are:
A. Recorded at their cost, plus total interest that will be paid over the life of the security.
B. Recorded at the amount of interest that will be paid 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.
66. 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.
67. A company owns 9% bonds with a par value of $100,000 that pay 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.
68. Everrine Corporation owns 3,000 shares of JRW Corporation. JRW Corporation has
25,000 shares of stock outstanding. JRW paid $4 per share in cash dividends to its
stockholders. The entry to record the receipt of these dividends is:
A. Debit Cash, $12,000; credit Long-Term Investments, $12,000.
B. Debt Long-Term Investment, $12,000; credit Cash, $12,000.
C. Debit Cash, $12,000; credit Dividend Revenue, $12,000.
D. Debit Unrealized Gain-Equity, $12,000; credit Cash, $12,000.
E. Debit Cash, $12,000; credit Unrealized Gain-Equity, $12,000.
69. A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay
interest on February 1 and August 1. The amount of interest accrued on December 31 (the
company's year-end) would be:
A. $ 250.
B. $ 500.
C. $1,250.
D. $2,500.
E. $3,000.
70. A company paid $37,800 plus a broker's fee of $525 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.
71. An investor purchased at par value $75,000 of Cort's 8% bonds, that mature in three-
years. The bonds pay interest semiannually on June 1 and December 1. The investor plans to
hold the bonds until they mature. When the bonds mature, the investor should prepare the
following journal entry:
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 Long-Term 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.
72. Griggs Company holds $50,000 of 8% bonds as a held-to-maturity security. Which of the
following is the correct journal entry to record the receipt of the 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.
73. Accounting for long-term investments in equity securities with controlling influence uses
the:
A. Controlling method.
B. Equity method with consolidation.
C. Investor method.
D. Investment method.
E. Consolidated method.
74. The controlling investor is called the:
A. Owner.
B. Subsidiary.
C. Parent.
D. Investee.
E. Senior entity.
75. 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%.
76. Long-term investments can include:
A. Held-to-maturity debt securities.
B. Available-for-sale debt securities.
C. Available-for-sale equity securities.
D. Equity securities giving an investor significant influence over an investee.
E. All of the choices can be classified as long-term investments.
77. Consolidated financial statements:
A. Show the results of operations, cash flows, and the financial position of all entities under a
parent's control.
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 the investments account on the balance sheet.
E. Do not include a balance sheet.
78. Comprehensive income includes:
A. Revenues and expenses reported in the income statement.
B. Gains and losses reported in the income statement.
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. All of the choices are included in comprehensive income.
79. 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.
80. 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 with amortization.
D. Cost method without amortization.
E. Equity method.
81. 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.
82. 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.
83. Foreign exchange rates fluctuate due to changes in:
A. Political conditions.
B. Economic conditions.
C. Supply and demand for currencies.
D. Expectations of future events.
E. All of the choices are reasons for rate fluctuations.
84. 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.
85. 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
86. Breanna Boutique purchased on credit £50,000 worth of clothing 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. Breanna Boutique 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.
87. Rosser 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. Rosser 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.
88. 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 gross margin ratio and price-earnings ratio.
D. High returns on total assets are desirable.
E. Return on total assets analysis is beneficial in evaluating a company but is not useful for
competitor analysis.
89. Doherty 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%
90. 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%.
91. 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%.
92. 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.
93. 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%
94. 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.
95. Investments can be classified as:
A. Trading securities.
B. Held-to-maturity debt securities.
C. Available-for-sale debt securities.
D. Available-for-sale equity securities.
E. All of the choices are correct.
96. Investments in debt and equity securities that the company actively manages and trades
for profit are referred to as short-term investments in:
A. Available-for-sale securities.
B. Held-to-maturity securities.
C. Trading securities.
D. Realizable securities.
E. Liquid securities.
97. Investments in trading securities:
A. Include only equity securities.
B. Are reported as current assets.
C. Include only debt securities.
D. Are reported at their cost, no matter what their market value.
E. Are long-term investments.
98. 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.
99. Held-to-maturity securities are:
A. Always classified as Long–Term Liabilities.
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 that have a maturity value greater than cost.
100. 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 with Long–Term Liabilities.
101. Available-for-sale equity securities:
A. Are recorded at cost when acquired.
B. May earn dividends that are reported in that year's income statement.
C. May be classified as either short-term or long-term securities.
D. Are reported at market value on the balance sheet.
E. All of the choices describe available-for-sale equity securities.
102. Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a
long-term investment. The investment is classified as available-for-sale securities. The par
value of the stock was $1 per share. Morgan paid $375 in commissions on the transaction.
The entry to record the transaction would include a:
A. Credit to Common Stock for $2,000.
B. Credit to Common Stock for $143,000.
C. Credit to Common Stock for $143,375.
D. Debit to Long–Term Investments-AFS for $143,000.
E. Debit to Long–Term Investments-AFS for $143,375.
103. Six months ago, a company purchased an investment in stock for $65,000. The
investment is classified as available-for-sale securities. The current fair value of the stock is
$68,500. The company should record a:
A. Debit to Unrealized Loss–Equity for $3,500.
B. Credit to Unrealized Gain–Equity for $3,500.
C. Debit to Investment Revenue for $3,500.
D. Credit to Market Adjustment – Available-for-Sale for $3,500.
E. Credit to Investment Revenue for $3,500.
104. On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000. The
investment is classified as available-for-sale securities. On October 31, which is Beatrice's
year-end, the stock had a fair value of $20,000. Beatrice should record a:
A. Credit to Unrealized Gain-Equity for $4,000.
B. Credit to Market Adjustment – Available-for-Sale for $4,000.
C. Credit to Investment Revenue for $4,000.
D. Debit to Investment Revenue for $4,000.
E. Debit to Unrealized Gain-Equity for $4,000.
105. On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for
$35,000. The investment is classified as available-for-sale securities. On June 30, the stock
had a fair value of $38,000. Carter should do all of the following except:
A. Record an increase to the Fair value Adjustment-AFS account.
B. Record an increase to the Unrealized Gain – Equity account.
C. Report the increase in the equity section of the balance sheet.
D. Report the increase in the asset section of the balance sheet.
E. Record an increase to the Unrealized Gain – Income account.
106. If a company owns more than 20% of the stock of another company and the stock is
being held as a long-term investment, which method would the investor normally use to
account for this investment?
A. Equity method.
B. Fair value method.
C. Historical cost method.
D. Cost with amortization method.
E. Effective method.
