Reference no: EM13341378

Question 1

Reed Company acquires 80 Holmes 10%, 5 year, $1,000 bonds on January 1, 2012 for $82,000. This includes a brokerage commission of $2,000. The journal entry to record this investment includes a debit to

Cash for $82,000.

Stock Investments for $80,000.

Debt Investments for $80,000.

Debt Investments for $82,000.

Question 2

Reed Company acquires 80 Holmes 10%, 5 year, $1,000 bonds on January 1, 2012 for $82,000. This includes a brokerage commission of $2,000. If Reed sells all of its Holmes Bonds for $83,200 and pays $2,400 in brokerage commissions, what gain or loss is recognized?

Gain of $3,200

Loss of $1,200

Gain of $1,200

Gain of $4,800

Question 3

On January 1, 2012, the Borth Company purchased at face value, a $1,000, 6%, bond that pays interest on January 1 and July 1. Borth Company has a calendar year end. The adjusting entry on December 31, 2012, is

Interest Receivable 30
Debt Investments 30

Cash 30
Interest Revenue 30

not required.

Interest Receivable 30
Interest Revenue 30

Question 4

On August 1, Dogwood Company buys 2,000 shares of XYZ common stock for $60,000 cash plus brokerage fees of $1,200. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

Aug. 1 Cash 61,200
Stock Investments 61,200
Dec. 1 Stock Investment 76,000
Cash 61,200
Gain on Sale of Stock Investments 14,800

Aug. 1 Cash 61,200
Stock Investments 61,200
Dec. 1 Cash 76,000
Stock Investments 61,200
Gain on Sale of Stock Investments 14,800

Aug. 1 Stock Investments 61,200
Cash 61,200
Dec. 1 Stock Investment 76,000
Cash 61,200
Gain on Sale of Stock Investments 14,800

Aug. 1 Stock Investments 61,200
Cash 61,200
Dec. 1 Cash 76,000
Stock Investments 61,200
Gain on Sale of Stock Investments 14,800

Question 5

Lanier Industries owns 45% of McCoy Company. For the current year, McCoy reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Lanier's equity in McCoy's net income and the receipt of dividends from McCoy?

Dec. 31 Stock Investments 112,500
Revenue from Investment in McCoy Company 112,500
Dec. 31 Cash 60,000
Stock Investments 60,000

Dec. 31 Revenue from Investment in McCoy Company 112,500
Stock Investments 112,500
Dec. 31 Stock Investments 27,000
Cash 27,500

Dec. 31 Stock Investments 85,500
Revenue from Investment in McCoy Company 85,500

Dec. 31 Stock Investments 112,500
Revenue from Investment in McCoy Company 112,500
Dec. 31 Cash 27,000
Stock Investments 27,000

Question 6

On January 1, 2012, Bartley Corp. paid $1,200,000 for 100,000 shares of Oak Company's common stock, which represents 40% of Oak's outstanding common stock. Oak reported income of $300,000 and paid cash dividends of $90,000 during 2012 Bartley should report the investment in Oak Company on its December 31, 2012, balance sheet at

$1,284,000

$1,236,000

$1,200,000

$1,116,000

Question 7

Terrell Corporation makes an investment in 200 shares of Simpson Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $800. The entry for the purchase is:

Stock Investments 10,000
Cash 10,000

Debt Investments 10,000
Cash 10,000

Stock Investments 10,800
Cash 10,800

Stock Investments 10,000
Brokerage Fee Expense 800
Cash 10,800

Question 8

For accounting purposes, the method used to account for investments in common stock is determined by

whether the stock has paid dividends in past years.

whether the acquisition of the stock by the investor was "friendly" or "hostile."

the amount paid for the stock by the investor.

the extent of an investor's influence over the operating and financial affairs of the investee.

Question 9

Hamilton Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $40 a share. Hamilton sold the shares for $45 a share. The entry to record the sale is

Cash 9,000
Gain on Sale of Stock Investments 1,000
Stock Investments 8,000

Stock Investments 8,000
Loss on Sale of Stock Investments 1,000
Cash 9,000

Cash 9,000
Stock Investments 9,000

Cash 8,000
Loss on Sale of Stock Investments 1,000
Stock Investments 9,000

Question 10

Under the cost method of accounting for dividends

Investment Revenue is credited when dividends are received.

the Investment account is credited when the investee reports a net income.

the Investment account is credited when dividends are received.

Investment Revenue is credited when the investee reports a net income.

Question 11

Hagan Company owns 10% interest in the stock of Nelsen Corporation. During the year, Nelsen pays $80,000 in dividends to Hagan, and reports $400,000 in net income. Hagan Company's investment in Nelsen will increase Hagan net income by

$80,000.

$40,000.

$96,000.

$8,000.

Question 12

If a stock investment is sold at a gain, the gain

is reported in the Other Revenue and Gain section of the income statement.

contributes to gross profit on the income statement.

is reported under a special section, "Discontinued investments," on the income statement.

is reported as operating revenue.

Question 13

When a company owns more than 50% of the common stock of another company

they recognize revenue when dividends are received.

consolidated financial statements are usually prepared.

they are referred to as the subsidiary.

the cost method of accounting is used.

Question 14

The company whose stock is owned by the parent company is called the

investee company.

sibling company.

controlled company.

subsidiary company.

Question 15

In recognizing a decline in the fair value of short-term stock investments, an Unrealized Loss account is debited because

management intends to realize this loss in the near future.

the securities have not been sold.

the stock market is volatile.

management cannot determine the exact amount of the loss in value.

Question 16

At the end of the first year of operations, the total cost of the trading securities portfolio is $180,000 and the total fair value is $174,000. What should the financial statements show?

A reduction of an asset of $6,000 and an unrealized loss of $6,000 in the stockholders' equity section.

A reduction of an asset of $6,000 in the current assets section and an unrealized loss of $6,000 under "Other expenses and losses."

A reduction of an asset of $6,000 and a realized loss of $6,000.

A reduction of an asset of $6,000 in the current assets section and a realized loss of $6,000 under "Other expenses and losses."

Question 17

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Gain on sale of debt investments.

Interest revenue.

Unrealized gain on available-for-sale securities.

Dividend revenue.

Question 18

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

will show a credit to a valuation allowance account that appears in the stockholders' equity section of the balance sheet.

will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

is not required since the share prices will likely rebound in the long run.

will show a debit to an expense account.

Question 19

At December 31, 2012, the trading securities for Mayfair, Inc. are as follow
Fair Value
Security Cost 12/31/12
X $90,000 $92,000
Y 150,000 142,000
Z 32,000 28,000
Mayfair should report the following amount related to the securities transactions in its 2012 income statement

$2,000 gain.

$10,000 realized loss.

$12,000 unrealized loss.

$10,000 unrealized loss.