95)
Select the correct statement from the following:
A)
Total asset turnover reflects the percent of net income in each dollar of net sales.
B)
Return on total assets analysis is beneficial in evaluating a company but is not useful for
competitor analysis.
C)
High returns on total assets are desirable.
D)
Profit margin reflects a company’s ability to produce net sales from total assets.
E)
Return on total assets can be separated into gross margin ratio and price-earnings ratio.
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) 200% B) 1.5% C) 6% D) 3% E) 17%
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) 13.8% B) 12.5% C) 13.1% D) 725% E) 800%
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) 75.0%. C) 600.0%. D) 16.7%. E) 13.3%.
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) 10.64%. B) 3.01%. 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%; 19.5.
B) 11.3%; 1.73.
C) 1.7%; 11.3.
D) 19.5%; 11.3.
E) 1.7%; 19.5.
101)
A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total assets
was:
A) 13.61% B) 19.32% C) 8.66% D) 12.34% E) 5.71%
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%; 1.5.
B) 13.3%; 0.2.
C) 1.5%; 0.2.
D) 2.0%; 1.5.
E) 1.5%; 13.3.
103)
Investments can be classified as all but which of the following:
A)
Held-to-maturity debt securities.
B)
Available-for-sale equity securities.
C)
Available-for-sale debt securities.
D)
Trading securities.
E)
Intangible investments.
104)
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)
Liquid securities.
E)
Realizable securities.
105)
Investments in trading securities:
A)
Are reported as current assets.
B)
Are long-term investments.
C)
Are reported at their cost, no matter what their market value.
D)
Include only debt securities.
E)
Include only equity securities.
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)
Unrealized loss.
B)
Market loss.
C)
Contingent loss.
D)
Realizable loss.
E)
Capitalized loss.
107)
Held-to-maturity securities are:
A)
Always classified as Short-Term Investments.
B)
Equity securities where significant influence involved.
C)
Debt securities that a company intends and is able to hold to maturity.
D)
Always classified as Long-Term Investments.
E)
Equity securities that a company intends and is able to hold to maturity.
108)
Available-for-sale debt securities are:
A)
Intended to be held to maturity.
B)
Always classified as Long-Term Investments.
C)
Reported at fair value on the balance sheet.
D)
Reported at historical cost, adjusted for the amortized amount of any difference between cost
and maturity value.
E)
Recorded at cost and remain at cost over the life of the investment.
109)
Carpark Services began operations in 20X1 and maintains long-term investments in
available-for-sale securities. The year-end cost and fair values for its portfolio of these investments
follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:
Available-for-Sale Securities
Cost
Fair
Value
$250,000
$241,000
$340,000
$350,000
$410,000
$415,000
A)
Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Loss –
Equity $9,000.
B)
Debit Unrealized Gain– Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale
(LT) $9,000.
C)
Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Gain –
Equity $9,000.
D)
Debit Unrealized Loss – Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale
(LT) $9,000.
E)
Debit Unrealized Loss – Income $9,000; Credit Fair Value Adjustment – Available-for-Sale
(ST) $9,000.
50
110)
Carpark Services began operations in 20X1 and maintains long-term investments in
available-for-sale securities. The year-end cost and fair values for its portfolio of these investments
follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:
Available-for-Sale Securities
Cost
Fair
Value
$250,000
$241,000
$340,000
$350,000
$410,000
$415,000
A)
Debit Fair Value Adjustment – Available-for-Sale (LT) $19,000; Credit Unrealized Loss –
Equity $9,000; Credit Unrealized Gain – Equity, $10,000.
B)
Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Loss –
Equity $10,000.
C)
Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Gain –
Equity, $10,000.
D)
Debit Fair Value Adjustment – Available-for-Sale (LT) $19,000; Credit Unrealized Gain –
Equity $19,000.
E)
Debit Unrealized Gain – Equity $10,000; Credit Fair Value Adjustment – Available-for-Sale
(LT) $10,000.
111)
Trading securities are:
A)
Intended to be held to maturity.
B)
Reported at historical cost, adjusted for the amortized amount of any difference between cost
and maturity value.
C)
Recorded at cost and remain at cost over the life of the investment.
D)
Always classified as Long-Term Investments.
E)
Reported at fair value on the balance sheet.
112)
All of the following are true for Available-for-sale equity securities except:
A)
Are reported at market value on the balance sheet.
B)
Are actively managed like Trading Securities.
C)
May be classified as either short-term or long-term securities.
D)
May earn dividends that are reported in that year’s income statement.
E)
Are recorded at cost when acquired.
113)
J.P. Industries purchased 2,000 shares of Yang’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. J.P. paid $375 in commissions on the transaction. J.P.’s entry to record the
purchase transaction would include a:
A)
Credit to Common Stock for $143,375.
B)
Debit to Long-Term Investments-AFS for $143,375.
C)
Debit to Long-Term Investments-AFS for $143,000.
D)
Credit to Common Stock for $2,000.
E)
Credit to Common Stock for $143,000.
114)
Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000
as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez
has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share.
Lessington’s entry to record the purchase transaction would include a:
A)
Credit to Common Stock for $4,000.
B)
Credit to Common Stock for $150,000.
C)
Debit to Long-Term Investments-AFS for $4,000.
D)
Credit Gain on Long-Term Investment $146,000.
E)
Debit to Long-Term Investments-AFS for $150,000.
115)
Six months ago, a company purchased an investment in stock for $70,000. The investment is
classified as available-for-sale securities. This is the company’s first and only investment in
available-for-sale securities. The current fair value of the stock is $68,500. The company should
record a:
A)
Credit to Unrealized Gain—Equity for $1,500.
B)
No entry is required.
C)
Credit to Investment Revenue for $1,500.
D)
Debit to Unrealized Loss—Equity for $1,500.
E)
Debit to Investment Revenue for $1,500.
116)
On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is
classified as available-for-sale securities. This is the company’s first and only investment in
available-for-sale securities. On October 31, which is Potter’s year-end, the stock had a fair value of
$20,000. Potter should record a:
A)
Debit to Unrealized Loss-Equity for $4,000.
B)
Credit to Investment Revenue for $4,000.
C)
Credit to Market Adjustment—Available-for-Sale for $4,000.
D)
Debit to Unrealized Gain-Equity for $4,000.
E)
Credit to Unrealized Gain-Equity for $4,000.
117)
On March 15, Alan Company purchased 10,000 shares of Cameo Corp. stock for $35,000. The
investment is classified as available-for-sale securities. This is the company’s first and only
investment in available-for-sale securities. On June 30, the stock had a fair value of $34,000. Alan
should do which of the following:
A)
Record a debit to the Fair Value Adjustment-AFS account.
B)
Report an increase in the asset section of the balance sheet.
C)
Report a decrease in the Gain on Sale of Investment income statement account.
D)
Record an increase to the Unrealized Gain—Income account.
E)
Record an increase to the Unrealized Loss—Equity account.
118)
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)
Effective method.
B)
Fair value method.
C)
Cost with amortization method.
D)
Historical cost method.
E)
Equity method.
119)
MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents
40% of the outstanding stock. The entry to record the transaction includes a:
A)
Debit to Short-Term Investment-AFS for $232,000.
B)
Debit to Long-Term Investments for $92,800.
C)
Debit to Long-Term Investments for $232,000.
D)
Debit to Long-Term Investments-HTM for $232,000.
E)
Credit to Long-Term Investments for $92,800.
120)
Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total of $47,000 in
cash dividends for the period. Segmental’s entry to record the dividend transaction would include a:
A)
Credit to Investment Revenue for $47,000.
B)
Credit to Long-Term Investments for $16,450.
C)
Credit to Cash for $16,450.
D)
Debit to Long-Term Investments for $16,450.
E)
Debit to Cash for $47,000.
121)
Zhang Corp. owns 40% of Magnor Company’s common stock. Magnor pays $97,000 in total cash
dividends to its shareholders. Zhang’s entry to record this transaction should include a:
A)
Credit to Long-Term Investments for $38,800.
B)
Debit to Dividends for $38,800.
C)
Credit to Cash for $97,000.
D)
Debit to Long-Term investments for $97,000.
E)
Debit to Dividends for $97,000.
122)
McVeigh Corp. owns 40% of Gondor Company’s common stock. McVeigh received $41,200 in
cash dividends from Gondor. The entry to record this transaction should include a:
A)
Credit to Cash for $41,200.
B)
Credit to Long-Term Investments for $103,000.
C)
Debit to Dividends for $103,000.
D)
Credit to Long-Term Investments for $41,200.
E)
Debit to Dividend Revenue for $41,200.
123)
Marjam Company owns 51,000 shares of MacKenzie Company’s 100,000 outstanding shares of
common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders.
Marjam’s entry to record this transaction should include a:
A)
Credit to Dividend Revenue for $25,000.
B)
Credit to Long-Term investments for $12,750.
C)
Credit to Long-Term Investments for $25,000.
D)
Debit to Dividend Revenue for $12,750.
E)
Debit to Interest Revenue for $12,750.
124)
Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October
17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end,
Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation’s
Long-Term Investment-Ferris account at December 31 should be:
A) $124,000. B) $80,800. C) $95,200. D) $119,200. E) $100,000.
60
125)
Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of
the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay
Corporation reported net income of $150,000. The balance in Madison Corporation’s Long-Term
Investment-Jay Corporation account as of December 31 should be:
A) $125,000. B) $197,000. C) $173,000. D) $77,000. E) $370,000.
126)
Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash
dividends from Kuster Corporation. The entry to record receipt of these dividends is:
A)
Debit Cash, $9,000; credit Interest Revenue, $9,000.
B)
Debit Cash, $9,000; credit Dividend Revenue, $9,000.
C)
Debt Long-Term Investment, $9,000; credit Cash, $9000.
D)
Debit Cash, $9,000; credit Long-Term Investments, $9,000.
E)
Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000.
127)
On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500
plus a broker’s fee of $1,000. Convell Company has a total of 25,000 shares of common stock
outstanding and it is presumed the Barber Company will have a significant influence over Convell.
During each of the next two years, Convell declared and paid cash dividends of $0.85 per share,
and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. The January 12,
Year 3, entry to record Barber’s sale of 3,000 shares of Convell Company stock, which represents
60% of Barber’s total investment, for $39,000 cash should be: