ACC 557 Week 9 Quiz – Strayer NEW



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Chapter 12

All possible questions with answers

TRUE-FALSE STATEMENTS

Corporations purchase investments in debt or stock securities generally for one of two reasons.


Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics



A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.


Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics



The accounting for short-term debt investments and for long-term debt investments is similar.


Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



When debt investments, are sold, the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds.


Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



Debt investments are investments in government and corporation bonds.


Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics



In accordance with the cost principle, brokerage fees should be added to the cost of an investment.


Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest.


Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



In accounting for stock investments of less than 20%, the equity method is used.


Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics



Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.


Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics



If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.


Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics



The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.


Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.


Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.


Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.


Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.


Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company.


Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



The valuation of non-trading securities is similar to the procedures followed for trading securities, except that changes in fair value are not recognized in current income.


Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.


Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



For non-trading securities, the unrealized gain or loss account is carried forward to future periods.


Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair value Adjustment account.


Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



If the fair value of a non-trading security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.


Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



The Fair Value Adjustment account can only have a credit balance or a zero balance.


Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.


Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



An investment is readily marketable if it is management's intent to sell the investment.


Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



Stocks traded on the New York Stock Exchange are considered readily marketable.


Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting



When a parent company acquires a wholly owned subsidiary for an amount in excess of the book value of the net assets acquired, the excess is always allocated to good will.


Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics



A consolidated income statement will reflect only revenue and expense transactions between the consolidated entity and parties outside the affiliated group.


Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics



The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.


Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics



One of the reasons a corporation may purchase investments is that it has excess cash.


Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics



When recording bond interest, Interest Receivable is reported as a long-term asset in the balance sheet.


Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA



Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.


Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting



Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.


Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting



Non-trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.


Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics



"Intent to convert" does not include an investment used as a resource that will be used whenever the need for cash arises.


Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics











MULTIPLE CHOICE QUESTIONS

Corporations invest excess cash for short periods of time in each of the following except
equity securities.
highly liquid securities.
low-risk securities.
government securities.


Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics



Corporations invest in other companies for all of the following reasons except to
house excess cash until needed.
generate earnings.
meet strategic goals.
increase trading of the other companies’ stock.


Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics



A typical investment to house excess cash until needed is
stocks of companies in a related industry.
debt securities.
low-risk, highly liquid securities.
stock securities.



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