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ACC557 Quiz

Price: $7.00


1. Non-trading securities are classified as

current assets only.
either short-term or long-term investments.
short-term investments only.
long-term investments only.


2. Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?
% of Investor Ownership Presumed Influence

Less than 20% Short-term
Between 20%-50% Significant
More than 50% Long-term
Between 20%-50% Controlling

3. Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

Unrealized gain on non-trading securities
Dividend revenue
Gain on sale of short-term debt investments
Interest revenue

4. A company may purchase a noncontrolling interest in another firm in a related industry

to house excess cash until needed.
for strategic reasons.
to generate earnings.
for speculative reasons.

5. In accounting for stock investments between 20% and 50%, the _______ method is used.

equity
consolidated statements
controlling interest
cost

6. Locke Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

credit to Interest Revenue for $1,515.
debit to Interest Receivable for $1,500.
credit to Interest Revenue for $1,500.
credit to Debt Investments for $1,515.

7. White Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $60 a share. White sold the shares for $40 a share. The entry to record the sale is

Stock Investments 12,000
Loss on Sale of Stock Investments 6,000
Cash 18,000

Cash 18,000
Gain on Sale of Stock Investments 6,000
Stock Investments 12,000

Cash 12,000
Loss on Sale of Stock Investments 6,000
Stock Investments 18,000

Cash 12,000
Stock Investments 12,000

8. If the equity method is being used, the Revenue from Stock Investments account is

just another name for a Dividend Revenue account.
credited when net income is reported by the investee.
credited when dividends are declared by the investee.
debited when dividends are declared by the investee.

9. If the cost method is used to account for a long-term investment in common stock

net income of the investee is not considered earned by the investor until dividends are declared by the investee.
it is presumed that the investor has significant influence on the investee.
the Investment account may be, at times, greater than the acquisition cost.
the earning of net income by the investee is considered a proper basis for recognition of income by the investor.

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

a partnership exists.
a parent-subsidiary relationship exists.
the company whose stock is owned must be liquidated.
the cost method should be used to account for the investment.

11. Mission Inc. earns $600,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.

What amount should Cox show in the investment account at December 31, 2013 if the beginning of the year balance in the account was $40,000?

$180,000
$190,000
$200,000
$175,000

12. When a company owns more than 50% of the common stock of another company,

consolidated financial statements are prepared.
controlling financial statements are prepared.
significant financial statements are prepared.
affiliated financial statements are prepared

13. Cosmic Company has the following data at December 31, 2013 for its securities:
Securities Cost Fair Value
Non-trading $46,000 $48,000
Trading 65,000 61,000

Based on this information, the adjusting entry to report the securities at fair value at December 31, 2013 will include a

debit to Unrealized Gain or Loss–Equity for $4,000.
debit to Fair Value Adjustment–Trading for $4,000.
credit to Unrealized Gain or Loss–Equity for $2,000.
credit to Fair Value Adjustment–Non-Trading for $4,000.

14. Laramie industries owns 45% of McCook Company. For the current year, McCook 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 Laramie's equity in McCook's net income and the receipt of dividends from McCook?

Dec. 31 Stock Investments 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash 60,000
Stock Investments 60,000

Dec. 31 Stock Investments 85,500
Revenue from Stock Investments 85,500

Dec. 31 Stock Investments 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash 27,000
Stock Investments 27,000

Dec. 31 Revenue from Stock Investments 112,500
Stock Investments 112,500
Dec. 31 Stock Investments 27,000
Cash 27,000

15. If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is

the equity method.
the cost method.
the preparation of consolidated financial statements.
determined by agreement with whomever owns the remaining 90% of the stock.

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