Question 1

Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.

Accepted Answer

A) True 
 B)False

Question 2

Trading debt investments are categorized as current assets.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is the major difference between the accounting for equity securities and debt securities?

Accepted Answer

A)   Debt securities are classified as liabilities, while equity securities are classified as assets.
B)   Debt securities are classified as trading debt investments, while equity securities are classified as held-to-maturity equity investments.
C)   Debt securities earn interest revenue, while equity securities may earn dividend revenue.
D)   Debt securities of all types have a maturity date, while only a few equity securities have a maturity date.

Question 4

Montgomery Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of Richmond Corporation,at face value,on June 30,2018.The bonds pay interest on June 30 and December 31.Montgomery intends to hold the bonds to maturity and has the ability to hold the bonds to maturity.The bonds are disposed of,at face value,on June 30,2023.
Prepare the journal entry for June 30,2018 (omit the explanation).

Accepted Answer

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Question 5

When a company uses excess cash to invest in equity securities with less than 20% ownership,its total equity will increase.

Accepted Answer

A) True 
 B)False

Question 6

All available-for-sale debt investments are reported as long-term assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 7

Held-to-maturity debt investments are normally reported at current market value.

Accepted Answer

A) True 
 B)False

Question 8

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.

Accepted Answer

A) True 
 B)False

Question 9

A parent company is a company that is controlled by another corporation.

Accepted Answer

A) True 
 B)False

Question 10

Debt securities represent a credit relationship with another company or governmental entity.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following accounting methods is used to account for controlling interest investments?

Accepted Answer

A)   cost method
B)   acquisition method
C)   consolidation method
D)   discounted cash flow method

Question 12

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31,2018.There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019.Which of the following is the correct journal entry?

Accepted Answer

A)     Trading Debt Investments 3800 Unrealized Holding Loss-Trading 3800\begin{array} { | l | r | r | } \hline 	ext { Trading Debt Investments } & 3800 & \\hline 	ext { Unrealized Holding Loss-Trading } & & 3800 \\hline\end{array} Trading Debt Investments  Unrealized Holding Loss-Trading ​3800​3800​​ 
B)     Unrealized Holding Loss-Trading 3800 Retained Earnings 3800\begin{array} { | l | r | r | } \hline 	ext { Unrealized Holding Loss-Trading } & 3800 & \\hline 	ext { Retained Earnings } & & 3800 \\hline\end{array} Unrealized Holding Loss-Trading  Retained Earnings ​3800​3800​​ 
C)     Unrealized Holding Loss-Trading 3800 Fair Value Adjustment-Trading 3800\begin{array} { | c | r | r | } \hline 	ext { Unrealized Holding Loss-Trading } & 3800 & \\hline 	ext { Fair Value Adjustment-Trading } & & 3800 \\hline\end{array} Unrealized Holding Loss-Trading  Fair Value Adjustment-Trading ​3800​3800​​ 
D)     Fair Value Adjustment-Trading 3800 Unrealized Holding Loss-Trading 3800\begin{array} { | c | r | r | } \hline 	ext { Fair Value Adjustment-Trading } & 3800 & \\hline 	ext { Unrealized Holding Loss-Trading } & & 3800 \\hline\end{array} Fair Value Adjustment-Trading  Unrealized Holding Loss-Trading ​3800​3800​​

Question 13

When a company pays cash for a long-term investment in bonds,________.

Accepted Answer

A)   equity remains unchanged
B)   current assets increase
C)   liabilities increase
D)   total assets increase

Question 14

If the Fair Value Adjustment - Trading account for trading debt investments has a debit balance,it is ________.

Accepted Answer

A)   considered to be a contra account
B)   subtracted from the Trading Debt Investment account to determine carrying value
C)   added to the Trading Debt Investment account to determine carrying value
D)   reported in the other income and expenses section of the income statement

Question 15

Under the equity method,the Equity Investments account is credited for the receipt of a dividend because the dividend decreases the investor's investment.

Accepted Answer

A) True 
 B)False

Question 16

When a company receives interest revenue on a long-term investment in bonds,________.

Accepted Answer

A)   long-term assets decrease
B)   long-term assets increase
C)   equity increases
D)   current assets decrease

Question 17

Which of the following statements regarding debt securities is incorrect?

Accepted Answer

A)   Debt securities include Held-to-Maturity Debt Investments, Trading Debt Investments, and Available-for-Sale Debt Investments.
B)   When recording the receipt of interest revenue on Trading Debt Investments, Interest Revenue is credited.
C)   If a Held-to-Maturity Debt Investment is purchased at a discount or premium, the discount/premium must be amortized when the interest revenue is earned.
D)   All investments in debt securities are categorized as long-term assets.

Question 18

Which of the following will be classified as an available-for-sale debt investment?

Accepted Answer

A)   debt securities which the investor intends to sell in the very near future
B)   debt securities the investor intends to hold and has the ability to hold until they mature
C)   all investments in Treasury bills
D)   all debt securities that are not trading debt investments or held-to-maturity debt investments

Question 19

The rate of return on total assets is a ratio that measures a company's success in using its assets to earn income.

Accepted Answer

A) True 
 B)False

Question 20

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

Accepted Answer

A) True 
 B)False

Exam 15: Investments

Correct Answer
verified
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View Answer

Which of the following accounting methods is used to account for controlling interest investments?

Correct Answer
verified

When a company receives interest revenue on a long-term investment in bonds,________.

Correct Answer
verified

Trading debt investments are categorized as current assets.

Correct Answer
verified

When a company pays cash for a long-term investment in bonds,________.

Correct Answer
verified

The rate of return on total assets is a ratio that measures a company's success in using its assets to earn income.

Correct Answer
verified

Which of the following is the major difference between the accounting for equity securities and debt securities?

Correct Answer
verified

Which of the following statements regarding debt securities is incorrect?

Correct Answer
verified

When a company uses excess cash to invest in equity securities with less than 20% ownership,its total equity will increase.

Correct Answer
verified

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

Correct Answer
verified

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.

Correct Answer
verified

Debt securities represent a credit relationship with another company or governmental entity.

Correct Answer
verified

Held-to-maturity debt investments are normally reported at current market value.

Correct Answer
verified

All available-for-sale debt investments are reported as long-term assets on the balance sheet.

Correct Answer
verified

A parent company is a company that is controlled by another corporation.

Correct Answer
verified

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31,2018.There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019.Which of the following is the correct journal entry?

Correct Answer
verified

Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.

Correct Answer
verified

If the Fair Value Adjustment - Trading account for trading debt investments has a debit balance,it is ________.

Correct Answer
verified

Under the equity method,the Equity Investments account is credited for the receipt of a dividend because the dividend decreases the investor's investment.

Correct Answer
verified

Which of the following will be classified as an available-for-sale debt investment?

Correct Answer
verified

Exam 15: Investments

Correct Answerverified\[\begin{array} { | l | l | l | l | } \...View AnswerShow Answer

Which of the following accounting methods is used to account for controlling interest investments?

Correct AnswerverifiedShow Answer

When a company receives interest revenue on a long-term investment in bonds,________.

Correct AnswerverifiedShow Answer

Trading debt investments are categorized as current assets.

Correct AnswerverifiedShow Answer

When a company pays cash for a long-term investment in bonds,________.

Correct AnswerverifiedShow Answer

The rate of return on total assets is a ratio that measures a company's success in using its assets to earn income.

Correct AnswerverifiedShow Answer

Which of the following is the major difference between the accounting for equity securities and debt securities?

Correct AnswerverifiedShow Answer

Which of the following statements regarding debt securities is incorrect?

Correct AnswerverifiedShow Answer

When a company uses excess cash to invest in equity securities with less than 20% ownership,its total equity will increase.

Correct AnswerverifiedShow Answer

Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.

Correct AnswerverifiedShow Answer

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.

Correct AnswerverifiedShow Answer

Debt securities represent a credit relationship with another company or governmental entity.

Correct AnswerverifiedShow Answer

Held-to-maturity debt investments are normally reported at current market value.

Correct AnswerverifiedShow Answer

All available-for-sale debt investments are reported as long-term assets on the balance sheet.

Correct AnswerverifiedShow Answer

A parent company is a company that is controlled by another corporation.

Correct AnswerverifiedShow Answer

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31,2018.There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019.Which of the following is the correct journal entry?

Correct AnswerverifiedShow Answer

Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.

Correct AnswerverifiedShow Answer

If the Fair Value Adjustment - Trading account for trading debt investments has a debit balance,it is ________.

Correct AnswerverifiedShow Answer

Under the equity method,the Equity Investments account is credited for the receipt of a dividend because the dividend decreases the investor's investment.

Correct AnswerverifiedShow Answer

Which of the following will be classified as an available-for-sale debt investment?

Correct AnswerverifiedShow Answer

Correct Answer
verified
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