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Exam 14: Understanding Investments in Debt and Equity Securities

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Question 101

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Why do corporations generally invest in debt or equity securities?

A) They have excess cash.
B) They want to generate earnings from investment income.
C) They invest for strategic reasons.
D) All of these answer choices are correct.

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Question 102

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Porter Brothers Company purchased a debt investment for $80,000 on January 1, 2022.On January 1, 2023, Porter received cash interest of $4,000.Which of the following correctly presents the journal entries for the purchase and the receipt of interest?

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Question 103

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At the time of acquisition of a debt investment

On January 1, Vega Company purchased as an investment a $1,000, 6% bond for $1,000.The bond pays interest on January 1.The bond is sold on July 1 for $1,100 plus accrued interest.Interest has not been accrued since the last interest payment date.What is the entry to record the cash proceeds at the time the bond is sold?

The balance in the Unrealized Gain or Loss-Equity account will

Cedar Co.purchased 80, 6% LKN Company bonds for $80,000 cash.Interest is payable annually on January 1.If 40 of the securities are sold January 1 for $41,000 the entry would include a credit to Gain on Sale of Debt Investments of

Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning one year from now.Peter will earn 10% on the initial investment.How many annual payments will Peter receive?

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

Cost and fair value data for the trading securities of Beltway Company at December 31, 2022, are $100,000 and $88,000, respectively.Which of the following correctly presents the adjusting journal entry to record the securities at fair value?

Reporting investments at fair value is

Short-term investments should be valued on the balance sheet at

Compound interest is the return on principal

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

Corporations purchase investments in debt or equity securities generally for one of two reasons.

Ashland Corporation sells 150 shares of common stock being held as an investment.The shares were acquired six months ago at a cost of $30 a share.Ashland sold the shares for $38 a share.The entry to record the sale is

If the cost method is used to account for an investment in stock, the Stock Investments account is increased by the amount of dividends received during the period.

Charleston Co.purchased 60, 6% APS Company bonds on January 1, 2022 for $60,000 cash.Interest is payable annually on January 1.The entry to record the January 1, 2023 annual interest payment would include a

Gulf Coast Corporation makes an investment in 200 shares of Eta Company's common stock.The stock is purchased for $52 a share.The entry for the purchase is