Multiple Choice Question 49
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.
Multiple Choice Question 51
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
Multiple Choice Question 54
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
Multiple Choice Question 75
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
Multiple Choice Question 76
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
Multiple Choice Question 77
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
Multiple Choice Question 83
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
Multiple Choice Question 85
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.
Multiple Choice Question 86
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
Multiple Choice Question 96
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.
Multiple Choice Question 107
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.
Multiple Choice Question 120
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.
Multiple Choice Question 131
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.
Multiple Choice Question 132
The company whose stock is owned by the parent company is called the
investee company.
sibling company.
controlled company.
subsidiary company.
Multiple Choice Question 137
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.
Multiple Choice Question 140
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.
Multiple Choice Question 148
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.
Multiple Choice Question 149
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.
Multiple Choice Question 159
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.
