(Test Bank) Financial Accounting

Libby, 11

Business

Test Bank

11th Edition

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Test Bank for Financial Accounting, The downloadable file consists of 978 pages, and the total size of the file is 5.9 MB. Purchase now only for highly discounted price.

Author(s): Libby

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Study Note Preview

Version 1 1 APPX A 1) Which of the following is the best description of investments in trading securities? A) Investments in bonds that management intends to hold to maturity. B) Investments in bonds that are held primarily for the purpose of selling them in the near future. C) Investments in more than fifty percent of the voting stock of another company. D) Investments that provide the investor significant influence over the investee, but not control over the investee. 2) Which of the following is the best description of investments in available-for-sale securities? A) Investments in bonds that management intends to hold to maturity. B) Investments in bonds that are held primarily for the purpose of selling them in the near future. C) Investments in more than fifty percent of the voting stock of another company. D) Investments in debt securities that are passive investments other than trading securities and held-to-maturity investments and are accounted for under the fair value method. 3) Idaho Company purchased, as a long-term investment, 30% of the outstanding bonds of Potato Corporation. Which of the following classifications should be used by Idaho Company in accounting for the investment? A) Trading securities. B) Held-to-maturity. C) Available-for-sale. D) Consolidation. 4) Chang Corporation purchased $1,000,000 of bonds at par value on April 1, 2022. The bonds pay interest at the rate of 10%. Chang intends and has the ability to hold these bonds to maturity. Which of the following statements is false? Version 1 2 A) Since the bonds were issued at par value, the cash interest will be the same as interest revenue. B) The bonds will earn $75,000 of interest by December 31, 2022. C) The bond investment must be accounted for using the fair value method. D) Since the bonds were classified as held-to-maturity, the company would not recognize unrealized gains or losses on the bonds during the period held by Chang. 5) On January 1, 2022, Riverdale Company acquired 15% (163,000 shares) of the outstanding voting stock of Falcon Company as a long-term investment for $3,732,700. During 2022, Rocker Company reported net income of $3,060,000 and dividends were declared and paid in the amount of $548,000. How much income will be reported during 2022 from the Rocker investment if the year-end price of the shares is $22.90 per share? A) $376,800. B) $548,000. C) $459,000. D) $82,200. 6) On January 1, 2022, Riverdale Company acquired 15% (160,000 shares) of the outstanding voting stock of Falcon Company as a long-term investment for $3,568,000. During 2022, Falcon Company reported net income of $3,000,000 and dividends were declared and paid in the amount of $500,000. How much income will be reported during 2022 from the Falcon investment if the year-end price of the shares is $22.30 per share? A) $450,000. B) $75,000. C) $375,000. D) $500,000. 7) Which of the following statements is correct? Version 1 3 A) Any unrealized holding gain or loss on debt investments in trading securities is reported on the income statement. B) Any unrealized holding gain or loss on debt investments in available-for-sale securities is reported on the income statement. C) All unrealized gains and losses on debt investments are reported on the income statement regardless of the method used to account for the investment. D) All unrealized holding gains and losses on debt investments are reported as a component of Other Comprehensive Income regardless of the method used to account for the investment. 8) Lyrical Company purchased debt securities for $500,000 and classified them as trading securities on September 15, 2022. On December 31, 2022, the current fair value of the securities was $481,000. How should the investment be reported within the 2022 financial statements? A) The debt investment in trading securities would be reported in the balance sheet at its $481,000 fair value. B) The debt investment in trading securities would be reported in the balance sheet at its $500,000 cost. C) A realized holding loss on the debt trading securities would be reported on the income statement. D) The investment in debt trading securities would be reported in the balance sheet at its $481,000 fair value and a realized holding loss on the debt trading securities would be reported on the income statement. 9) Libby Company purchased debt securities for $104,150 and classified them as available-for-sale securities on September 15, 2022. At December 31, 2022, the current fair value of the debt securities was $111,500. How should the investment be reported in the 2022 financial statements? Version 1 4 A) The $7,350 realized gain is reported within the income statement. B) The $7,350 unrealized gain is reported within the income statement. C) The debt investment in available-for-sale securities would be reported in the balance sheet at its $111,500 fair valueand an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet. D) The debt investment in available-for-sale securities would be reported on the balance sheet at its $104,150 cost. 10) Libby Company purchased debt securities for $100,000 and classified them as available-for-sale securities on September 15, 2022. At December 31, 2022, the current fair value of the debt securities was $105,000. How should the investment be reported in the 2022 financial statements? A) The debt investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost. B) The $5,000 unrealized gain is reported within the income statement. C) The $5,000 realized gain is reported within the income statement. D) The debt investment in available-for-sale securities would be reported in the balance sheet at its $105,000 fair value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet. 11) On January 1, 2022, Short Company purchased 14,000 shares (15% of the outstanding voting shares) of Daniel Corporation's $1 par value common stock at a cost of $74 per share as a long-term investment. During November 2022, Daniel declared and paid a cash dividend of $2.45 per share. At December 31, 2022, the end of the accounting period, Daniel's shares were selling at $66.00. What is the net amount reported in the income statement for the year ended December 31, 2022 for Short Company related to this investment? A) $146,300 B) $34,300 C) ($112,000) D) ($77,700) Version 1 5 12) On January 1, 2022, Short Company purchased 20,000 shares (15% of the outstanding voting shares) of Daniel Corporation's $1 par value common stock at a cost of $50 per share as a long-term investment. During November 2022, Daniel declared and paid a cash dividend of $1.25 per share. At December 31, 2022, the end of the accounting period, Daniel's shares were selling at $48. What is the net amount reported in the income statement for the year ended December 31, 2022 for Short Company related to this investment? A) $65,000 B) $25,000 C) ($40,000) D) ($15,000) 13) On July 1, 2022, as a long-term investment, Wildlife Supply Company purchased 5,100 of the 32,000 outstanding shares of the nonvoting preferred stock of Nature Company for $43 per share. The records of Nature Company reflect the following: 2022 net income $ 73,000 Dividends declared and paid during December, 2022 $ 7,800 December 31, 2022 market price per share $ 40 The amount reported on the balance sheet by Wildlife Supply Company for its investment at December 31, 2022 would be which of the following? A) $220,998. B) $337,960. C) $305,960. D) $204,000. 14) On July 1, 2022, as a long-term investment, Wildlife Supply Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock of Nature Company for $30 per share. The records of Nature Company reflect the following: 2022 net income $ 60,000 Dividends declared and paid during December, 2022 $ 6,500 December 31, 2022 market price per share $ 27 Version 1 6 The amount reported on the balance sheet by Wildlife Supply Company for its investment at December 31, 2022 would be which of the following? A) $179,800. B) $162,000. C) $182,000. D) $197,800. 15) On July 1, 2022, Shadow Company purchased long-term investments in equity securities as follows: Eagle Corporation common stock (par $5) 2,400 shares at $20 per share. Nest Company preferred stock (par $20) 1,900 shares at $34 per share. The quoted market prices per share on December 31, 2022 were as follows: Eagle Corporation stock, $19.00 per share Nest Company stock, $34 per share Each of the long-term investments represents 15% of the total shares outstanding. The combined carrying value of the long-term investments reported in Shadow's balance sheet at December 31, 2022 would be which of the following? A) $105,900. B) $108,300. C) $112,600. D) $110,200. 16) On July 1, 2022, Shadow Company purchased long-term investments in equity securities as follows: Eagle Corporation common stock (par $5) 2,000 shares at $24 per share. Nest Company preferred stock (par $20) 1,500 shares at $45 per share. The quoted market prices per share on December 31, 2022 were as follows: Eagle Corporation stock, $22.50 per share Nest Company stock, $45 per share Each of the long-term investments represents 10% of the total shares outstanding. The combined carrying value of the long-term investments reported in Shadow’s balance sheet at December 31, 2022 would be which of the following? Version 1 7 A) $115,500. B) $110,250. C) $107,250. D) $112,500. 17) When accounting for investments in trading securities, any decline in fair value below the cost of the investments is reported in which of the following ways? A) On the income statement as a realized loss. B) On the income statement as an unrealized holding loss. C) On the balance sheet as a realized loss. D) On the balance sheet as an unrealized holding loss in the stockholders' equity section. 18) The primary difference in accounting for available-for-sale debt investments and accounting for trading debt investments is which of the following? A) Measuring the fair value of the long-term and short-term investment portfolios on the balance sheet. B) Determination of the acquisition cost. C) Reporting of the unrealized holding gain or loss on investments within the financial statements. D) Determination of the unrealized holding gain or loss. 19) On July 1, 2022, Carter Company purchased equity securities as follows: Dark Corporation common stock (par $1) 9,200 shares at $17 per share. Janin Corporation preferred stock (par $100) 1,200 shares at $123 per share. The quoted market prices per share on December 31, 2022 were as follows: Dark Corporation stock, $19 per share Janin Corporation stock, $122 per share Each of the investments represented 5% of the total shares outstanding. The carrying value amount of the investments at December 31, 2022 should be: Version 1 8 A) $304,000. B) $302,800. C) $322,400. D) $321,200. 20) On July 1, 2022, Carter Company purchased equity securities as follows: Dark Corporation common stock (par $1) 10,000 shares at $25 per share. Janin Corporation preferred stock (par $100) 2,000 shares at $105 per share. The quoted market prices per share on December 31, 2022 were as follows: Dark Corporation stock, $27 per share Janin Corporation stock, $104 per share Each of the investments represented 5% of the total shares outstanding. The carrying value amount of the investments at December 31, 2022 should be: A) $478,000. B) $460,000. C) $458,000. D) $480,000. 21) Which of the following is true about a passive investment in common stock? A) The investing company usually owns less than 20% of the voting stock in the affiliate and the investment is reported on the balance sheet at cost. B) The investment must not have any voting rights. C) The fair value method requires unrealized gains and losses to be recognized in the stockholders’ equity section of the balance sheet. D) The investing company usually owns less than 20% of the voting stock in the affiliate and the investment must be reported at fair value on the balance sheet. Version 1 9 22) Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock, which constitutes 10% of Martin's voting stock on June 30, 2022 for $42 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 2022, Martin paid a $4,000,000 cash dividend. On December 31, Martin's stock was trading at $45 per share and Martin reported 2022 net income of $52 million. What method of accounting will Phillips use to account for this investment? A) Amortized cost method. B) Equity method. C) Fair value method. D) Consolidation. 23) Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock, which constitutes 10% of Martin's voting stock on June 30, 2022 for $42 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 2022, Martin paid a $4,000,000 cash dividend. On December 31, Martin's stock was trading at $45 per share and Martin reported 2022 net income of $52 million. What effect will the dividend have on Phillips' 2022 financial statements? A) It will increase cash and increase dividend income. B) It will increase cash and decrease investment in associated companies. C) It will increase cash and increase net unrealized gains/losses. D) It will increase cash and increase the investment account. 24) Phillips Corporation purchased 1,008,000 shares of Martin Corporation's common stock, which constitutes 10% of Martin's voting stock on June 30, 2022 for $46.00 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 2022, Martin paid a $4,004,000 cash dividend. On December 31, Martin's stock was trading at $53 per share and Martin reported 2022 net income of $60 million. What investment value will be reflected on Phillips' balance sheet at December 31, 2022? Version 1 10 A) $54,832,000. B) $46,368,000. C) $53,424,000. D) $54,432,000. 25) Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock, which constitutes 10% of Martin's voting stock on June 30, 2022 for $42 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 2022, Martin paid a $4,000,000 cash dividend. On December 31, Martin's stock was trading at $45 per share and Martin reported 2022 net income of $52 million. What investment value will be reflected on Phillips' balance sheet at December 31, 2022? A) $42,000,000. B) $45,000,000. C) $46,800,000. D) $47,200,000. 26) McGinn Company purchased 10% of RJ Company's common stock during 2022 for $104,000. The 10% investment in RJ had a $92,000 fair value at the end of 2022 and a $108,000 fair value at the end of 2023. Which of the following statements is correct? A) The 2023 unrealized gain is $4,000 but is not included in McGinn's 2023 net income. B) The 2022 unrealized loss is $12,000 and is reported on McGinn's balance sheet as a component of stockholders' equity. C) The 2023 unrealized gain is $16,000 and is included in McGinn's 2023 net income. D) The 2022 unrealized loss is $12,000, but is not included in McGinn's 2022 net income. Version 1 11 27) McGinn Company purchased 10% of RJ Company's common stock during 2022 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2022 and a $105,000 fair value at the end of 2023. Which of the following statements is correct? A) The 2022 unrealized loss is $10,000, but is not included in McGinn's 2022 net income. B) The 2023 unrealized gain is $5,000 and is included in McGinn's 2023 net income. C) The 2023 unrealized gain is $15,000 and is included in McGinn's 2023 net income. D) The 2022 unrealized loss is $10,000 and is reported on McGinn's balance sheet as a component of stockholders' equity. 28) Lumber Company purchased 16% of Jack Company's common stock during 2022 for $104,250. The 16% investment in Jack had a $98,500 fair value at the end of 2022 and a $107,250 fair value at the end of 2023. Which of the following statements is correct? A) The 2022 unrealized loss is $5,750 and is reported on Lumber's balance sheet as a component of stockholders' equity and is not reported on the income statement. B) The 2023 unrealized gain is $8,750 and is included in Lumber's 2023 net income. C) The 2022 unrealized loss is $5,750, but is not included in Lumber's 2022 net income. D) The 2023 unrealized gain is $3,000 and is included in Lumber's 2023 net income. 29) Lumber Company purchased 16% of Jack Company's common stock during 2022 for $160,000. The 16% investment in Jack had a $144,000 fair value at the end of 2022 and a $168,000 fair value at the end of 2023. Which of the following statements is correct? A) The 2022 unrealized loss is $16,000, but is not included in Lumber's 2022 net income. B) The 2023 unrealized gain is $8,000 and is included in Lumber's 2023 net income. C) The 2023 unrealized gain is $24,000 and is included in Lumber's 2023 net income. D) The 2022 unrealized loss is $16,000 and is reported on Lumber's balance sheet as a component of stockholders' equity and is not reported on the income statement. Version 1 12 30) On January 2, 2022, Surfside Company purchased 13,500 shares of Sand, Incorporated for $324,000. The investment represented 12% of Sand’s outstanding shares. On December 31, 2022 each share of Sand was selling for $23 per share and on December 31, 2023 each share of Sand was selling for $32 per share. Which of the following correctly presents the entries made by Surfside to its investment account for this investment? A) January 2, 2022, credit $324,000; December 31, 2022, debit $13,500; December 31, 2023, credit $121,500. B) January 2, 2022, debit $324,000; December 31, 2022, credit $13,500; December 31, 2023, debit $108,000. C) January 2, 2022, debit $324,000; December 31, 2022, credit $13,500; December 31, 2023, debit $121,500. D) January 2, 2022, debit $324,000; December 31, 2022, debit $13,500; December 31, 2023, credit $108,000. 31) On January 2, 2022, Surfside Company purchased 12,000 shares of Sand, Incorporated for $240,000. The investment represented 12% of Sand’s outstanding shares. On December 31, 2022 each share of Sand was selling for $19 per share and on December 31, 2023 each share of Sand was selling for $23 per share. Which of the following correctly presents the entries made by Surfside to its investment account for this investment? A) January 2, 2022, debit $240,000; December 31, 2022, credit $12,000; December 31, 2023, debit $48,000. B) January 2, 2022, debit $240,000; December 31, 2022, credit $12,000; December 31, 2023, debit $36,000. C) January 2, 2022, debit $240,000; December 31, 2022, debit $12,000; December 31, 2023, credit $36,000. D) January 2, 2022, credit $240,000; December 31, 2022, debit $12,000; December 31, 2023, credit $48,000. Version 1 13 32) On January 2, 2022, Surfside Company purchased 14,300 shares of Sand, Incorporated for $286,000. The investment represented 10% of Sand’s outstanding shares. On December 31, 2022, each share of Sand was selling for $42 per share and on December 31, 2023, each share of Sand was selling for $46 per share. Sand declared and paid dividends totaling $31,500 in 2022 and 2023. What was the total amount reported on the income statement in 2023 by Surfside with respect to its Sand, Incorporated investment? A) $60,350. B) $3,150. C) $46,050. D) $54,630. 33) On January 2, 2022, Surfside Company purchased 12,000 shares of Sand, Incorporated for $240,000. The investment represented 12% of Sand’s outstanding shares. On December 31, 2022, each share of Sand was selling for $19 per share and on December 31, 2023, each share of Sand was selling for $23 per share. Sand declared and paid dividends totaling $20,000 in 2022 and 2023. What was the total amount reported on the income statement in 2023 by Surfside with respect to its Sand, Incorporated investment? A) $38,400. B) $50,400. C) $2,400. D) $45,600. 34) Yoga Company purchased 15% of Glow Company's outstanding bonds during 2022 for $255,000. The bonds had a $272,000 fair value at the end of 2022 and a $238,000 fair value at the end of 2023. If the bonds are accounted for as trading securities, which of the following statements is correct? Version 1 14 A) The 2022 unrealized gain is $17,000, but is not included in Yoga's 2022 net income. B) The 2023 unrealized loss is $34,000 and is reported on Yoga's balance sheet as a component of stockholders' equity. C) The 2023 unrealized loss is $34,000 and is included in Yoga's 2023 net income. D) The 2022 unrealized gain is $17,000 and is reported on Yoga's balance sheet as a component of stockholders' equity. 35) Rye Company purchased 15% of Lena Company's common stock during 2022 for $150,000. The Investment in Lena had a $160,000 fair value at the end of 2022 and a $140,000 fair value at the end of 2023. Which of the following statements is incorrect? A) The net $10,000 unrealized loss on the investment is reported on Rye's balance sheet as a component of other comprehensive income. B) The 2023 unrealized loss is $20,000 and is included in Rye's 2023 net income. C) The investment is reported at $140,000 on the December 31, 2023 balance sheet. D) The 2022 unrealized gain is $10,000 and is included in Rye's 2022 net income. 36) Rye Company purchased 10% of Lena Company's common stock during 2022 for $169,000. The Investment in Lena had a $198,000 fair value at the end of 2022 and a $159,000 fair value at the end of 2023. Lena Company declared and paid dividends of $45,500 in 2022 and $47,500 in 2023. What is the total amount reported on Rye’s income statement for the year ended December 31, 2023 as it relates to the Lena investment? A) $33,750. B) ($34,250). C) ($33,750). D) $4,750. Version 1 15 37) Rye Company purchased 15% of Lena Company's common stock during 2022 for $150,000. The Investment in Lena had a $160,000 fair value at the end of 2022 and a $140,000 fair value at the end of 2023. Lena Company declared and paid dividends of $36,000 in 2022 and $38,000 in 2023. What is the total amount reported on Rye’s income statement for the year ended December 31, 2023 as it relates to the Lena investment? A) $15,700. B) ($14,300). C) ($15,700). D) $5,700. 38) Rye Company purchased 10% of Lena Company's common stock during 2022 for $152,000. The Investment in Lena had a $164,000 fair value at the end of 2022 and a $142,000 fair value at the end of 2023. Lena Company reported net income of $61,000 in 2022 and $73,000 in 2023 and declared and paid dividends of $32,000 each year. On Rye Company’s balance sheet at December 31, 2023, what amount was reported for the investment in Lena Company? A) $159,000. B) $155,800. C) $159,400. D) $145,800. 39) Rye Company purchased 25% of Lena Company's common stock during 2022 for $150,000. The Investment in Lena had a $160,000 fair value at the end of 2022 and a $140,000 fair value at the end of 2023. Lena Company reported net income of $60,000 in 2022 and $72,000 in 2023 and declared and paid dividends of $30,000 each year. On Rye Company’s balance sheet at December 31, 2023, what amount was reported for the investment in Lena Company? A) $168,000. B) $175,000. C) $160,500. D) $150,500.