Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 8: Investments and International Operations
8.1-1Long-term investments are listed on the balance sheet after current assets, but before property, plant, and
equipment.
8.1-2Long-term investments include shares and bonds that the investor expects to hold for longer than one year.
8.1-3Assets are listed on the balance sheet in order of liquidity.
8.1-4 The accounting rules for investments in shares depend on the percentage of ownership by the investor.
8.1-5Receipt of a share dividend requires the same journal entry as a cash dividend.
8.1-6The Unrealized Gain/Loss on the Investment account is reported as other comprehensive income, which can
be included either as a section of the Statement of Comprehensive Income or a section of Statement of Changes
in Equity.
8.1-7Available-for-sale investments in shares are reported on the balance sheet at current market values.
8.1-8On the balance sheet date, available-for-sale investments are adjusted from market value to cost.
8.1-9 The Allowance to Adjust Investment to Market is a companion account to Long-Term Investments.
8.1-10 The Allowance to Adjust Investment to Market is reported in the Long-Term Assets section of the
balance sheet.
8.1-11 Realized gains on the sale of available-for-sale securities are used to compute net income.
8.1-12 Unrealized gains and losses result from sales of the investments.
8.1-13 An investee should report available-for-sale securities that might be sold in the next 12 months as a long-
term investment.
8.1-14 Unrealized gains and losses on available-for-sale securities are used to compute net income.
8.1-15 An investment in ordinary shares acquired during the year at a cost of $45,000 has a market value at
year end of $45,771. The adjusting entry requires a debit to Allowance to Adjust Investment to
Market for $771.
8.1-16 High Times Corporation owns 300 shares of Low Tide Company’s ordinary shares. Low Tide has
1,000,000 ordinary shares outstanding. High Times Corporation is the:
A) investor.
B) investee.
C) parent company.
D) controlling company.
8.1-17 High Times Corporation owns 300 shares of Low Tide Company’s ordinary shares. Low Tide has
1,000,000 ordinary shares outstanding. Low Tide Company is the:
A) investor.
B) investee.
C) parent company.
D) controlling company.
8.1-18 High Times Corporation owns 300 shares of Low Tide Company’s ordinary shares. Low Tide has
1,000,000 ordinary shares outstanding. High Times Corporation will show the investment on their
books as:
A) a liability.
B) an equity.
C) an asset.
D) other comprehensive income.
8.1-19 If an investment is liquid and the investor intends to convert the investment to cash within one year,
the investment will be classified as:
A) long-term.
B) equity.
C) short-term.
D) either long-term or short term.
8.1-20 The following is the proper order for assets on a balance sheet:
A) Cash, intangibles, long-term investments, property, plant and equipment
B) Cash, long-term investments, intangibles, property, plant and equipment
C) Cash, long-term investments, property, plant and equipment, and intangibles
D) Cash, property, plant and equipment, long-term investments, intangibles
8.1-21 All investments not classified as held-to maturity or trading securities are:
A) available-for-sale investments.
B) equity investments.
C) debt investments.
D) short-term investments.
8.1-22 Available-for-sale investments in shares are reported on the balance sheet at:
A) their amortized cost.
B) their historical cost or current market value on the balance sheet date.
C) the lower-of-cost-or-market value on the balance sheet date.
D) their current market value.
8.1-23 Available-for-sale investments in shares are initially recorded at:
A) their amortized cost.
B) their cost.
C) the lower-of-cost-or-market.
D) none of the above.
8.1-24 The market value of an available-for-sale security has increased from the last carrying value. The
journal entry to record this increase will include:
A) a debit to the Allowance to Adjust Investment to Market.
B) a credit to the Allowance to Adjust Investment to Market.
C) a debit to the Unrealized Gain on Investment.
D) none of the above.
8.1-25 The market value of an available-for-sale security has increased from the last carrying value. The
journal entry to record this increase will include:
A) a credit to the Allowance to Adjust Investment to Market.
B) a credit to the Unrealized Gain on Investment.
C) a debit to the Unrealized Gain on Investment.
D) none of the above.
8.1-26 The Allowance to Adjust Investment to Market has a credit balance. Therefore:
A) the Allowance account is subtracted from the carrying amount.
B) the Allowance account is added to the carrying amount.
C) the Allowance account is neither added nor subtracted from the carrying amount.
D) none of the above are true.
8.1-27 The market value of an available-for-sale security has declined from the last carrying value. The
journal entry to record this decline will include:
A) a credit to the Allowance to Adjust Investment to Market.
B) a credit to the Unrealized Gain on Investment.
C) a debit to the Unrealized Loss on Investment.
D) both A and C.
8.1-28 Unrealized gains and losses from available-for-sale investments arise from:
A) the sale of the investment.
B) changes in the market value of the investment.
C) both the sale of the investment and changes in the market value of the investment.
D) none of the above.
81-29 Realized gains and losses from available-for-sale investments arise from:
A) the sale of the investment.
B) changes in the market value of the investment.
C) both the sale of the investment and changes in the market value of the investment.
D) none of the above.
8.1-30 How are available-for-sale investments in shares reported on the balance sheet?
A) As long-term assets
B) As current assets
C) As either current assets or long-term assets, depending on when the investment is expected to be
sold
D) As both long-term assets and shareholders’ equity
8.1-31 The Unrealized Gains and Losses on Available-for-sale Securities account appear in which financial
statement?
A) The balance sheet in the assets section
B) The balance sheet as part of shareholders’ equity
C) The income statement as an operating expense
D) The balance sheet in the liabilities section
8.1-32 The Unrealized Gain or the Unrealized Loss Account appears:
A) in Other comprehensive income.
B) in Accumulated other comprehensive income.
C) in Other comprehensive income and Accumulated other comprehensive income.
D) in none of the above.
8.1-33 With regard to available-for-sale securities, which of the following is used to compute net income?
A) Realized gains
B) Unrealized gains
C) Both unrealized gains and realized gains
D) Neither realized gains nor unrealized gains
8.1-34 The journal entry to record the receipt of a share dividend arising from an available-for-sale
investment held by a company includes:
A) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue.
B) a debit to Cash and a credit to Dividend Revenue.
C) a debit to Cash and a credit to Unrealized Gain on Investments.
D) no journal entry. Only a memorandum entry is required.
8.1-35 The journal entry to record the receipt of a cash dividend arising from an available-for-sale
investment held by a company includes:
A) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue.
B) a debit to Cash and a credit to Dividend Revenue.
C) a debit to Cash and a credit to Unrealized Gain on Investments.
D) no journal entry. Only a memorandum entry is required.
8.1-36 The receipt of a cash dividend:
A) has no effect on assets or total equity.
B) increases assets and increases paid-in-capital.
C) increases assets and decreases shareholders’ equity.
D) increases assets and increases retained earnings.
8.1-37 The receipt of a share dividend:
A) has no effect on assets or total equity.
B) increases assets and increases paid-in-capital.
C) increases assets and decreases shareholders’ equity.
D) increases assets and increases retained earnings.
8.1-38 As a result of a share dividend:
A) the investor’s total cost in the investment does not change.
B) the investor’s cost per share decreases.
C) no journal entry is needed to record the receipt of the share dividend.
D) all of the above occur.
8.1-39 The gain or loss on the sale of an investment classified as “available-for-sale” is measured by
comparing the amount received from the sale of investment with the:
A) market value of the investment.
B) lower-of-cost-or-market value of the investment.
C) cost of the investment.
D) amortized cost of the investment.
8.1-40 ABC receives a share dividend of 50 shares from XYZ Company. ABC previously owned 500 shares
of XYZ shares that had a cost basis of $3,135. The cost basis per share of XYZ shares is:
A) $60.
B) $6.96.
C) $6.00.
D) $5.70.
8.1-41 An investment in ordinary shares acquired during the year at a cost of $20,000 has a year-end market
value of $21,250. The year-end adjusting entry requires a:
A) debit to Allowance to Adjust Investments to Market for $1,250.
B) debit to Long-Term Investments for $1,250.
C) debit to Unrealized Gain on Investment for $1,250.
D) credit to Allowance to Adjust investment to Market for $1,250.
8.1-42 The journal entry to record the sale of an available-for-sale investment includes a loss on sale of
investment for $700. The income statement will reflect:
A) an other expense of $700.
B) a decrease in net sales of $700.
C) nothing, since the entry impacts only asset accounts.
D) an extraordinary loss of $700.
8.1-43 Abba Company purchased 1,000 shares of Dabber Company at $20 per share. Abba received an
additional 250 shares from Dabber Company as a share dividend. After receiving the share dividend,
the total value of the investment in Dabber and cost per share of Dabber, respectively is:
A) $25,000 and $20.
B) $20,000 and $16.
C) $25,000 and $16.
D) $20,000 and $20.
8.1-44 The Allowance to Adjust Investments to Market account has a current credit balance of $950 after
adjustment. Available-for-sale investments have a current market value of $15,000. The carrying
value of the investments is:
A) $15,950.
B) $15,000.
C) $14,050.
D) unknown. The carrying value cannot be computed without knowing the cost of the investment.
8.1-45 The Allowance to Adjust Investment to Market account has a current debit balance of $900.
Available-for-sale investments with a cost a $5,000 have a current market value of $6,350. The
adjusting entry will require a:
A) credit to Allowance to Adjust Investments to Market for $450.
B) debit to Allowance to Adjust Investments to Market for $450.
C) credit to Allowance to Adjust Investments to Market for $1,350.
D) debit to Allowance to Adjust Investments to Market for $1,350.
8.1-46 The Allowance to Adjust Investment to Market account has a current credit balance of $979.
Available-for-sale investments with a cost of $19,000 have a current market value of $20,250. The
adjusting entry will require a:
A) credit to Allowance to Adjust Investment to Market for $271.
B) debit to Allowance to Adjust Investment to Market for $271.
C) credit to Allowance to Adjust Investment to Market for $2,229.
D) debit to Allowance to Adjust Investment to Market for $2,229.
8.1-47 Which of the following is the method used when one company owns less than 20% of the shares of
another company?
A) Market value method
B) Consolidation method
C) Equity method
D) Amortized method
8.1-48 Which of the following is the method used when one company owns 20% to 50% of the shares of
another company?
A) Market value method
B) Consolidation method
C) Equity method
D) Amortized method
8.1-49 Which of the following is the method used when one company owns more than 50% of the shares of
another company?
A) Market value method
B) Consolidation method
C) Equity method
D) Amortized method
8.2-1 When an investor owns 35% of the shares of another business, cash dividends received from the
investee company are generally recorded by decreasing the value of the Investment account.
8.2-2 The equity method is used to account for shares investments in which the investor company owns
between 20% and 50% of another company’s shares.
8.2-3 If the equity method is used to account for shares investments, the investor company recognizes
revenue when it receives a cash dividend from the investee company.
8.2-4 Investments accounted for by the equity method are initially recorded at cost.
8.2-5 Under the equity method, the investor applies its percentage of ownership in recording its share of the
investee’s net income and dividends.
8.2-6 Under the equity method, when the equity of the investee increases, the investment account on the
investor’s books decreases
10.2-7
8.2-7When the equity method is used to account for shares investments, the carrying value of an
investment is computed as the cost of the investment plus a proportional share of investee net income
minus a proportional share of cash dividends paid by the investee.
8.2-8 An investor who owns 35% of the outstanding shares of another company should report the
investment using the:
A) market value method.
B) equity method.
C) consolidated method.
D) historical cost.
8.2-9 The method used to account for investments in which the investor has 20-50% of the investee’s
voting shares and can significantly influence the decisions of the investee is the:
A) market value method.
B) equity method.
C) consolidated method.
D) historical cost.
8.2-10 The investor should generally use the equity method of accounting for the investee if the investor
owns what percentage of the outstanding shares of the investee?
A) 0% – 15%
B) 20% – 50%
C) 50% – 100%
D) More than 50%
8.2-11 The equity method of accounting for a shares investment should generally be used when the investor
owns a level of shares ownership that:
A) is the controlling interest in the investee company.
B) gives the investor significant influence over the investee company.
C) usually indicates a plan to acquire a controlling interest in the investee company.
D) requires the investor to notify the government of any plans to acquire a controlling interest in the
investee company.
8.2-12 Under the equity method, investee companies are referred to as:
A) the parent company.
B) the subsidiary company.
C) affiliates.
D) the consolidated company.
8.2-13 A company that owns between 20% and 50% of the ordinary shares of another business recognizes
revenue from the investment when:
A) the company receives a cash dividend from the investee company.
B) the company sells the shares in the investee company.
C) the investee company recognizes net income.
D) any of the above occur.
8.2-14 Blueberry Jam Company owns 37% of Georgia Peach Company. Net income for Georgia Peach
Company for the year is $317,000. The journal entry prepared by Blueberry Jam Company includes
a:
A) debit to Long-Term Investments for $117,290.
B) credit to Long-Term Investments for $117,290.
C) debit to Long-Term Investments for $199,710.
D) credit to Long-Term Investments for $199,710.
8.2-15 If an investor company owns between 20% and 50% of the ordinary shares of another business, cash
dividends received from the investee company are generally recorded by the investor company by:
A) decreasing the investor company’s Share Capital account.
B) increasing the value of the investor’s Investment account.
C) increasing the Dividend Revenue account.
D) decreasing the value of the investor’s Investment account.