Question 1

Which of the following is an example of a security?

Accepted Answer

A)  dividends
B)  municipal bond
C)  interest expense
D)  depreciationE) A) and D)
F) A) and C)

Question 2

An equity security represents a credit relationship with another company or governmental entity.

Accepted Answer

A) True 
 B)False

Question 3

Glitter Services pays $700,000 for 100,000 shares to acquire 30% of voting stock of Grey Investments on January 5, 2016. Grey Investments declares and pays a cash dividend of $1.4 per share on June 14, 2016. Which of the following is the correct journal entry for the transaction on June 14, 2016?

Accepted Answer

A)   
B)   
C)   
D)   E) B) and C)
F) A) and D)

Question 4

Significant interest investments must be accounted for using the equity method.

Accepted Answer

A) True 
 B)False

Question 5

When a firm collects the face value of a long-term investment in bonds at maturity:

Accepted Answer

A)  both assets and equity of the firm remains unchanged.
B)  both assets and liabilities of the firm increase.
C)  both assets and equity of the firm increase.
D)  liabilities decrease and equity increases.E) B) and C)
F) A) and D)

Question 6

The Gain on Disposal from trading securities is a(n) :

Accepted Answer

A)  current asset account.
B)  fixed asset account.
C)  liability account.
D)  equity account.E) All of the above
F) C) and D)

Question 7

Trading investments:

Accepted Answer

A)  include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable.
B)  are investments in debt and equity securities that are highly illiquid and that the investor intends to keep till their maturity.
C)  are investments in debt securities, the investor intends to hold until maturity.
D)  are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future.E) C) and D)
F) All of the above

Question 8

At the maturity of a bond investment, the journal entry has:

Accepted Answer

A)  a debit to Cash and a credit to the Short-term Investments account.
B)  a debit to the Short-term Investments account and a credit to Cash.
C)  a debit to the Interest Revenue and a credit to Cash.
D)  a debit to Cash and a credit to Interest Revenue.E) A) and B)
F) A) and C)

Question 9

An equity security does not represent an ownership interest in a corporation, although it pays dividends.

Accepted Answer

A) True 
 B)False

Question 10

A preferred stock is an example of a debt security.

Accepted Answer

A) True 
 B)False

Question 11

Debt securities do not include U.S. government securities.

Accepted Answer

A) True 
 B)False

Question 12

When there is an unrealized loss on trading investments, the ________ will decrease.

Accepted Answer

A)  total equity
B)  cash
C)  total liabilities
D)  long term investmentsE) A) and C)
F) None of the above

Question 13

Which of the following is true of the accounting entries for debt securities?

Accepted Answer

A)  The receipt of interest revenue is recorded with a debit to Interest Revenue and a credit to Cash.
B)  Investments in debt securities are recorded at cost, including any brokerage fees paid.
C)  The receipt of interest revenue is recorded with a debit to Cash and a credit to Long-term Securities-Held-to-Maturity.
D)  Debt securities disposed of at maturity are recorded with a debit to the Short-term or Long-term Investments account and a credit to Cash.E) C) and D)
F) A) and B)

Question 14

Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive Technologies on May 5, 2015. This investment will be classified as a(n) :

Accepted Answer

A)  trading investment.
B)  available for sale.
C)  significant interest investment.
D)  held-to-maturity.E) None of the above
F) C) and D)

Question 15

When a company invests in equity securities with 20% or more, but less than 50%, ownership in the investee's voting stock, the investor can significantly influence the investee's decisions.

Accepted Answer

A) True 
 B)False

Question 16

A subsidiary company is a company that:

Accepted Answer

A)  is controlled by another corporation.
B)  owns a controlling interest in another company.
C)  is the first to begin operations in an industry.
D)  that has a trading investment in another company.E) None of the above
F) A) and D)

Question 17

Companies invest in trading investments with the intent of:

Accepted Answer

A)  increasing the amount of long-term assets.
B)  gaining the controlling rights of the investee.
C)  holding the investment till maturity.
D)  generating a profit on a quick sale.E) B) and C)
F) All of the above

Question 18

An equity security:

Accepted Answer

A)  represents a credit relationship with another company or governmental entity.
B)  is a standardized contract between two parties to buy oil at a set price.
C)  represents stock ownership in another company and sometimes pays dividends.
D)  is a financial instrument which entitles the holder to receive periodic interest.E) A) and B)
F) A) and C)

Question 19

The unrealized holding gains and losses on available-for-sale investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.

Accepted Answer

A) True 
 B)False

Question 20

A security is a share or interest representing financial value.

Accepted Answer

A) True 
 B)False

Exam 15: Investments

Which of the following is an example of a security?

Correct AnswerverifiedShow Answer

An equity security:

Correct AnswerverifiedShow Answer

Debt securities do not include U.S. government securities.

Correct AnswerverifiedShow Answer

A subsidiary company is a company that:

Correct AnswerverifiedShow Answer

A security is a share or interest representing financial value.

Correct AnswerverifiedShow Answer

An equity security represents a credit relationship with another company or governmental entity.

Correct AnswerverifiedShow Answer

Trading investments:

Correct AnswerverifiedShow Answer

When a firm collects the face value of a long-term investment in bonds at maturity:

Correct AnswerverifiedShow Answer

Glitter Services pays $700,000 for 100,000 shares to acquire 30% of voting stock of Grey Investments on January 5, 2016. Grey Investments declares and pays a cash dividend of $1.4 per share on June 14, 2016. Which of the following is the correct journal entry for the transaction on June 14, 2016?

Correct AnswerverifiedShow Answer

At the maturity of a bond investment, the journal entry has:

Correct AnswerverifiedShow Answer

The Gain on Disposal from trading securities is a(n) :

Correct AnswerverifiedShow Answer

A preferred stock is an example of a debt security.

Correct AnswerverifiedShow Answer

When a company invests in equity securities with 20% or more, but less than 50%, ownership in the investee's voting stock, the investor can significantly influence the investee's decisions.

Correct AnswerverifiedShow Answer

The unrealized holding gains and losses on available-for-sale investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.

Correct AnswerverifiedShow Answer

When there is an unrealized loss on trading investments, the ________ will decrease.

Correct AnswerverifiedShow Answer

Which of the following is true of the accounting entries for debt securities?

Correct AnswerverifiedShow Answer

Companies invest in trading investments with the intent of:

Correct AnswerverifiedShow Answer

An equity security does not represent an ownership interest in a corporation, although it pays dividends.

Correct AnswerverifiedShow Answer

Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive Technologies on May 5, 2015. This investment will be classified as a(n) :

Correct AnswerverifiedShow Answer

Significant interest investments must be accounted for using the equity method.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified