Question 1

The income statement for Dobson Corporation reported net income of $22,400 for the year ended December 31 before considering the following:During the year,the company purchased available-for-sale securities.At year-end,the fair value of the investment portfolio was $2,100 more than cost.The balance of Retained Earnings was $83,000 on January 1.Dobson Corporation paid $9,000 in cash dividends during the year.Calculate the balance of Retained Earnings on December 31.

Accepted Answer

​​*Because these are available-for-sale securities,the increase in fair market value is part of stockholders' equity,not net income.

Question 2

Held-to-maturity investments are recorded at their cost,which would include broker's commissions.

Accepted Answer

A) True 
 B)False

Question 3

(a)What is comprehensive income? 
(b)How is it calculated? 
(c)What are some examples of items included in other comprehensive income? 
(d)Where is comprehensive income reported?

Accepted Answer

(a)Comprehensive income is all changes i...

Question 4

Discuss the similarities and differences in reporting trading securities,available-for-sale securities,and held-to-maturity securities.

Accepted Answer

Both trading securities and available-fo...

Question 5

Which of the following stock investments should be accounted for using the cost method?

Accepted Answer

A)  investments of less than 20%
B)  investments between 20% and 50%
C)  investments of less than 20% and investments between 20% and 50%
D)  All stock investments should be accounted for using the cost method

Question 6

Growth firms generally pay regular dividends to stockholders.

Accepted Answer

A) True 
 B)False

Question 7

To record a bond investment made between interest payment dates,Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

Accepted Answer

A) True 
 B)False

Question 8

Investments that do not normally change in value are disclosed on the balance sheet as cash and cash equivalents.

Accepted Answer

A) True 
 B)False

Question 9

On May 1,Cedar Inc.purchases $150,000 of 10-year,Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest.Journalize the entry to record the semiannual receipt of interest on March 1,Year 2.

Accepted Answer

The answer of On May 1,Cedar Inc.purchases $150,000 of 10-year,Knox...

Question 10

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

Accepted Answer

A)  the amount paid for the stock by the investor
B)  whether the acquisition of the stock by the investor was "friendly" or "hostile"
C)  the extent of an investor's influence over the operating and financial affairs of the investee
D)  whether the stock has paid dividends in past years C

Question 11

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

Accepted Answer

A) True 
 B)False

Question 12

Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives?

Accepted Answer

A)  debit Investments-Worton Corporation; credit Cash
B)  debit Cash; credit Dividend Revenue
C)  debit Investments-Worton Corporation; credit Income of Worton Corporation
D)  debit Cash; credit Investments-Worton Corporation

Question 13

In general,consolidated financial statements should be prepared

Accepted Answer

A)  when a corporation owns more than 20% and less than 40% of the common stock of another company
B)  when a corporation owns more than 50% of the common stock of another company
C)  only when a corporation owns 100% of the common stock of another company
D)  whenever the market value of the stock investment is significantly lower than its cost

Question 14

Investment in Bonds is reported on the balance sheet at lower of cost or market.

Accepted Answer

A) True 
 B)False

Question 15

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1.Marco reported net income of $95,000 and declared dividends of $35,000 during the year.How much would Ramiro adjust its investment in Marco Company under the equity method?

Accepted Answer

The answer of Ramiro Company purchased 40% of the outstanding...

Question 16

Match each of the definitions that follow with the appropriate investment term (a-j) .
-What occurs when a company purchases 50% or more of another company's stock

Accepted Answer

A)  Debt securities
B)  Equity securities
C)  Investor
D)  Investee
E)  Cost methodF) Trading securitiesG) Available-for-sale securitiesH) Held-to-maturity securitiesI) Equity methodJ) Business combination J

Question 17

Which of the following is not a part of comprehensive income?

Accepted Answer

A)  foreign currency items
B)  cash flows from stock investments
C)  unrealized gains and losses on available-for-sale securities
D)  pension liability adjustments

Question 18

The equity method of accounting for investments requires

Accepted Answer

A)  a year-end adjustment to revalue the stock to lower of cost or market
B)  the investment to be reported at its original cost
C)  the investment to be increased by the reported net income of the investee
D)  the investment to be increased by the dividends paid by the investee

Question 19

The company whose stock is more than 50% owned by another company is called the

Accepted Answer

A)  controlling company
B)  investee company
C)  subsidiary company
D)  sibling company

Question 20

The journal entry Pierce will record on June 30 will include a

Accepted Answer

A)  credit to Interest Revenue for $2,400
B)  debit to Cash for $3,600
C)  credit to Cash for $2,400
D)  credit to Interest Receivable for $1,200

Exam 15: Investments and Fair Value Accounting

Correct Answer
verified
*Because these are available-for-sale securities,the increase in fair market value is part of stockholders' equity,not net income. 11ea8d32_28a2_a40a_b445_178009f3769d_TB6239_00

Held-to-maturity investments are recorded at their cost,which would include broker's commissions.

Correct Answer
verified

(a)What is comprehensive income? (b)How is it calculated? (c)What are some examples of items included in other comprehensive income? (d)Where is comprehensive income reported?

Correct Answer
verified
(a)Comprehensive income is all changes i...
View Answer

Discuss the similarities and differences in reporting trading securities,available-for-sale securities,and held-to-maturity securities.

Correct Answer
verified
Both trading securities and available-fo...
View Answer

Which of the following stock investments should be accounted for using the cost method?

Correct Answer
verified

Growth firms generally pay regular dividends to stockholders.

Correct Answer
verified

To record a bond investment made between interest payment dates,Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

Correct Answer
verified

Investments that do not normally change in value are disclosed on the balance sheet as cash and cash equivalents.

Correct Answer
verified

On May 1,Cedar Inc.purchases $150,000 of 10-year,Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest.Journalize the entry to record the semiannual receipt of interest on March 1,Year 2.

Correct Answer
verified

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

Correct Answer
verified
C

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

Correct Answer
verified

Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives?

Correct Answer
verified

In general,consolidated financial statements should be prepared

Correct Answer
verified

Investment in Bonds is reported on the balance sheet at lower of cost or market.

Correct Answer
verified

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1.Marco reported net income of $95,000 and declared dividends of $35,000 during the year.How much would Ramiro adjust its investment in Marco Company under the equity method?

Correct Answer
verified

Match each of the definitions that follow with the appropriate investment term (a-j) . -What occurs when a company purchases 50% or more of another company's stock

Correct Answer
verified
J

Which of the following is not a part of comprehensive income?

Correct Answer
verified

The equity method of accounting for investments requires

Correct Answer
verified

The company whose stock is more than 50% owned by another company is called the

Correct Answer
verified

The journal entry Pierce will record on June 30 will include a

Correct Answer
verified

Exam 15: Investments and Fair Value Accounting

Correct Answerverified​​*Because these are available-for-sale securities,the increase in fair market value is part of stockholders' equity,not net income. 11ea8d32_28a2_a40a_b445_178009f3769d_TB6239_00

Held-to-maturity investments are recorded at their cost,which would include broker's commissions.

Correct AnswerverifiedShow Answer

(a)What is comprehensive income? (b)How is it calculated? (c)What are some examples of items included in other comprehensive income? (d)Where is comprehensive income reported?

Correct Answerverified(a)Comprehensive income is all changes i...View AnswerShow Answer

Discuss the similarities and differences in reporting trading securities,available-for-sale securities,and held-to-maturity securities.

Correct AnswerverifiedBoth trading securities and available-fo...View AnswerShow Answer

Which of the following stock investments should be accounted for using the cost method?

Correct AnswerverifiedShow Answer

Growth firms generally pay regular dividends to stockholders.

Correct AnswerverifiedShow Answer

To record a bond investment made between interest payment dates,Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

Correct AnswerverifiedShow Answer

Investments that do not normally change in value are disclosed on the balance sheet as cash and cash equivalents.

Correct AnswerverifiedShow Answer

On May 1,Cedar Inc.purchases $150,000 of 10-year,Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest.Journalize the entry to record the semiannual receipt of interest on March 1,Year 2.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

Correct AnswerverifiedShow Answer

Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives?

Correct AnswerverifiedShow Answer

In general,consolidated financial statements should be prepared

Correct AnswerverifiedShow Answer

Investment in Bonds is reported on the balance sheet at lower of cost or market.

Correct AnswerverifiedShow Answer

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1.Marco reported net income of $95,000 and declared dividends of $35,000 during the year.How much would Ramiro adjust its investment in Marco Company under the equity method?

Correct AnswerverifiedShow Answer

Match each of the definitions that follow with the appropriate investment term (a-j) . -What occurs when a company purchases 50% or more of another company's stock

Correct AnswerverifiedJ

Which of the following is not a part of comprehensive income?

Correct AnswerverifiedShow Answer

The equity method of accounting for investments requires

Correct AnswerverifiedShow Answer

The company whose stock is more than 50% owned by another company is called the

Correct AnswerverifiedShow Answer

The journal entry Pierce will record on June 30 will include a

Correct AnswerverifiedShow Answer

Correct Answer
verified
*Because these are available-for-sale securities,the increase in fair market value is part of stockholders' equity,not net income. 11ea8d32_28a2_a40a_b445_178009f3769d_TB6239_00

Correct Answer
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Correct Answer
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(a)Comprehensive income is all changes i...
View Answer

Correct Answer
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Both trading securities and available-fo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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C

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J

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