Question 1

All of the following are true of fair value accounting except

Accepted Answer

A)  GAAP requires trading and available-for-sale investments to be recorded at fair value
B)  fair value measurements have become more reliable
C)  the differences between original cost and fair value are reported in valuation allowance accounts
D)  fair values only affect balance sheet accountsE) B) and C)
F) A) and D)

Question 2

Match each of the definitions that follow with the appropriate investment term (a-j) .
-A balance sheet account where the fair value adjustment for investments is reported

Accepted Answer

A)  Equity method
B)  Parent company
C)  Subsidiary company
D)  Consolidated financial statements
E)  Fair valueF) Unrealized gain or loss on investments.G) Valuation allowance for investmentsH) Dividend yieldI) Amortized costJ) Cost methodK) B) and D)
L) A) and C)

Question 3

When bonds held as long-term investments are purchased at a price other than the face value,the premium or discount should be amortized over the remaining life of the bonds.

Accepted Answer

A) True 
 B)False

Question 4

Held-to-maturity securities

Accepted Answer

A)  are reported at their fair market value on the balance sheet date
B)  include both stocks and bonds
C)  are primarily purchased to earn interest revenue
D)  All of these choicesE) A) and B)
F) B) and C)

Question 5

If the bonds are purchased between interest dates,the purchase price includes accrued interest since the last interest payment.

Accepted Answer

A) True 
 B)False

Question 6

On October 1,Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation,due in 8½ years.The bonds were purchased at their face amount plus interest of $400 accrued from July 1,the date of the last semiannual interest payments.Journalize the purchase.

Accepted Answer

The answer of On October 1,Marcus Corporation purchased $20,000 of...

Question 7

Available-for-sale securities are securities that management expects to sell in the future,but are not actively traded for profit.

Accepted Answer

A) True 
 B)False

Question 8

The account Unrealized Gain (Loss) on Trading Investments should be included on the

Accepted Answer

A)  income statement as other revenue (expense) 
B)  balance sheet as an adjustment to the asset account
C)  balance sheet as an adjustment to stockholders' equity
D)  statement of retained earningsE) A) and B)
F) B) and D)

Question 9

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Accepted Answer

A) True 
 B)False

Question 10

Trading securities are reported on the balance sheet at cost.

Accepted Answer

A) True 
 B)False

Question 11

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Accepted Answer

A) True 
 B)False

Question 12

Match each of the definitions that follow with the appropriate investment term (a-j) .
-The value assigned to held-to-maturity securities

Accepted Answer

A)  Equity method
B)  Parent company
C)  Subsidiary company
D)  Consolidated financial statements
E)  Fair valueF) Unrealized gain or loss on investments.G) Valuation allowance for investmentsH) Dividend yieldI) Amortized costJ) Cost methodK) A) and E)
L) B) and J)

Question 13

On February 12,Addison,Inc.purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee.This purchase represents less than 20% ownership of Lucas Company.On August 22,Lucas paid a dividend per share of $0.42.On November 10,4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.​Prepare the journal entries for the original purchase,dividend,and sale.

Accepted Answer

The answer of On February 12,Addison,Inc.purchased 6,000 shares of Lucas...

Question 14

Match each of the definitions that follow with the appropriate investment term (a-j) .
-A corporation controlled by another corporation that owns all or the majority of its voting stock

Accepted Answer

A)  Equity method
B)  Parent company
C)  Subsidiary company
D)  Consolidated financial statements
E)  Fair valueF) Unrealized gain or loss on investments.G) Valuation allowance for investmentsH) Dividend yieldI) Amortized costJ) Cost methodK) G) and J)
L) G) and I)

Question 15

All of the following are true of the effect of fair value accounting on the financial statements except

Accepted Answer

A)  any difference between the original cost or the prior period's fair value must be recorded
B)  changes in the fair value of trading securities are recognized on the income statement
C)  valuation allowance accounts are reported on the balance sheet
D)  changes in the fair value of available-for-sale securities are recognized on the income statementE) All of the above
F) A) and B)

Question 16

Nicer Corporation reported net income of $50,000 in the current year.There are 10,000 shares of $100 par,6% preferred stock and 50,000 shares of $2 par common stock outstanding.During the year,Nicer paid the preferred stockholders a $6-per-share dividend and also paid $30,000 to common shareholders.The market value of Nicer's stock is preferred stock,$95,and common stock,$5.​
(a)Calculate Nicer's dividend yield common stock.
(b)Why does the dividend yield vary widely across firms?

Accepted Answer

(a)Dividend Yield = $0.60*/$5.00 = 12%​ ...

Question 17

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1.Roberts reported net income of $155,000 and declared dividends of $40,000 during the year.How would these events be reported by Sutton using the cost method?

Accepted Answer

When using the cost method,there is no a...

Question 18

Under the equity method,the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

Accepted Answer

A)  Investment in Vallerio
B)  Retained Earnings
C)  Dividend Revenue
D)  Dividend ReceivablesE) B) and C)
F) None of the above

Question 19

If one company owns more than 50% of the common stock of another company,

Accepted Answer

A)  a partnership exists
B)  a parent-subsidiary relationship exists
C)  the company whose stock is owned must be liquidated
D)  the cost method should be used to account for the investmentE) A) and B)
F) None of the above

Question 20

Financial statements in which financial data for two or more companies are combined as a single entity are called

Accepted Answer

A)  conventional statements
B)  consolidated statements
C)  audited statements
D)  constitutional statementsE) B) and C)
F) C) and D)

Exam 15: Investments and Fair Value Accounting

Correct Answer
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When bonds held as long-term investments are purchased at a price other than the face value,the premium or discount should be amortized over the remaining life of the bonds.

Correct Answer
verified

Match each of the definitions that follow with the appropriate investment term (a-j) . -The value assigned to held-to-maturity securities

Correct Answer
verified

All of the following are true of fair value accounting except

Correct Answer
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Trading securities are reported on the balance sheet at cost.

Correct Answer
verified

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Correct Answer
verified

The account Unrealized Gain (Loss) on Trading Investments should be included on the

Correct Answer
verified

If the bonds are purchased between interest dates,the purchase price includes accrued interest since the last interest payment.

Correct Answer
verified

All of the following are true of the effect of fair value accounting on the financial statements except

Correct Answer
verified

Financial statements in which financial data for two or more companies are combined as a single entity are called

Correct Answer
verified

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Correct Answer
verified

Available-for-sale securities are securities that management expects to sell in the future,but are not actively traded for profit.

Correct Answer
verified

Under the equity method,the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

Correct Answer
verified

Correct Answer
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(a)Dividend Yield = $0.60*/$5.00 = 12% ...
View Answer

Held-to-maturity securities

Correct Answer
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Match each of the definitions that follow with the appropriate investment term (a-j) . -A corporation controlled by another corporation that owns all or the majority of its voting stock

Correct Answer
verified

If one company owns more than 50% of the common stock of another company,

Correct Answer
verified

Match each of the definitions that follow with the appropriate investment term (a-j) . -A balance sheet account where the fair value adjustment for investments is reported

Correct Answer
verified

On October 1,Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation,due in 8½ years.The bonds were purchased at their face amount plus interest of $400 accrued from July 1,the date of the last semiannual interest payments.Journalize the purchase.

Correct Answer
verified

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1.Roberts reported net income of $155,000 and declared dividends of $40,000 during the year.How would these events be reported by Sutton using the cost method?

Correct Answer
verified
When using the cost method,there is no a...
View Answer

Exam 15: Investments and Fair Value Accounting

Correct AnswerverifiedShow Answer

When bonds held as long-term investments are purchased at a price other than the face value,the premium or discount should be amortized over the remaining life of the bonds.

Correct AnswerverifiedShow Answer

Match each of the definitions that follow with the appropriate investment term (a-j) . -The value assigned to held-to-maturity securities

Correct AnswerverifiedShow Answer

All of the following are true of fair value accounting except

Correct AnswerverifiedShow Answer

Trading securities are reported on the balance sheet at cost.

Correct AnswerverifiedShow Answer

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Correct AnswerverifiedShow Answer

The account Unrealized Gain (Loss) on Trading Investments should be included on the

Correct AnswerverifiedShow Answer

If the bonds are purchased between interest dates,the purchase price includes accrued interest since the last interest payment.

Correct AnswerverifiedShow Answer

All of the following are true of the effect of fair value accounting on the financial statements except

Correct AnswerverifiedShow Answer

Financial statements in which financial data for two or more companies are combined as a single entity are called

Correct AnswerverifiedShow Answer

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Correct AnswerverifiedShow Answer

Available-for-sale securities are securities that management expects to sell in the future,but are not actively traded for profit.

Correct AnswerverifiedShow Answer

Under the equity method,the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

Correct AnswerverifiedShow Answer

Correct Answerverified(a)Dividend Yield = $0.60*/$5.00 = 12%​ ...View AnswerShow Answer

Held-to-maturity securities

Correct AnswerverifiedShow Answer

Match each of the definitions that follow with the appropriate investment term (a-j) . -A corporation controlled by another corporation that owns all or the majority of its voting stock

Correct AnswerverifiedShow Answer

If one company owns more than 50% of the common stock of another company,

Correct AnswerverifiedShow Answer

Match each of the definitions that follow with the appropriate investment term (a-j) . -A balance sheet account where the fair value adjustment for investments is reported

Correct AnswerverifiedShow Answer

On October 1,Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation,due in 8½ years.The bonds were purchased at their face amount plus interest of $400 accrued from July 1,the date of the last semiannual interest payments.Journalize the purchase.

Correct AnswerverifiedShow Answer

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1.Roberts reported net income of $155,000 and declared dividends of $40,000 during the year.How would these events be reported by Sutton using the cost method?

Correct AnswerverifiedWhen using the cost method,there is no a...View AnswerShow Answer

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(a)Dividend Yield = $0.60*/$5.00 = 12% ...
View Answer

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When using the cost method,there is no a...
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