ACC 206 Week 8 Quiz – Strayer



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Quiz 6 Chapter16


INVESTMENTS


CHAPTERSTUDYOBJECTIVES

1.Discusswhycorporationsinvestindebtandstocksecurities.

2.Explaintheaccountingfordebtinvestments.

3.Explaintheaccountingforstockinvestments.

4.Describetheuseofconsolidatedfinancialstatements.

5.Indicatehowdebtandstockinvestmentsarereportedinfinancialstatements.

6.Distinguishbetweenshort-termandlong-terminvestments.


TRUE-FALSESTATEMENTS


1.     Corporationspurchaseinvestmentsindebtorstocksecuritiesgenerallyforoneoftwo reasons.

2.     Areasonsomecompaniespurchaseinvestmentsisbecausetheygenerateasignificant portion of theirearningsfrom investmentincome.

3.     Theaccountingforshort-termdebtinvestmentsandforlong-termdebtinvestmentsis similar.

4.     Forshort-termdebtinvestments,anybondpremiumordiscountisamortizedtointerest revenue over theremainingtermofthebonds.

5.     Debtinvestmentsareinvestmentsingovernmentandcorporationbonds.

6.     Inaccordancewiththecostprinciple,brokeragefeesshouldbeaddedtothecostofan investment.

7.     Inaccordancewiththecostprinciple,thecostofdebtinvestmentsincludesbrokerage feesandaccruedinterest.

8.     Inaccountingforstockinvestmentsof lessthan20%,the equity methodis used.

9.     Dividendsreceivedon stock investmentsoflessthan 20%shouldbe creditedtothe Stock Investmentsaccount.

10.     Ifaninvestor owns between 20%and50%ofaninvestee'scommonstock,itispresumed that the investorhassignificantinfluenceontheinvestee.

11.     The StockInvestmentsaccountis debitedatacquisitionunderboththe equitymethodand cost methodof accountingfor investmentsincommonstock.

12.     Undertheequity method, the investmentin commonstockis initiallyrecordedatcost, and the Stock Investments accountisadjustedannually.

13.     Undertheequity method, thereceiptofdividendsfrom theinvesteecompanyresultsin an increase intheStockInvestmentsaccount.

14.     Consolidatedfinancialstatementsareappropriatewhenaninvestorcontrolsaninvestee byownershipof morethan50% ofthe investee'scommonstock.

15.     Consolidatedfinancial statementsare preparedinplace ofthe financialstatementsforthe parent andsubsidiarycompanies.

16.     Consolidatedfinancialstatementsshouldbepreparedonlywhenasubsidiarycompany has a controllinginterestintheparentcompany.

17.     Thevaluationofavailable-for-salesecuritiesissimilartotheproceduresfollowedfor tradingsecurities,exceptthatchangesinfairvaluearenotrecognizedincurrentincome.
Investments     16-5

18.     Anunrealizedgainorlossontradingsecuritiesisreportedasaseparatecomponentof stockholders' equity.

19.     Foravailable-for-salesecurities,theunrealizedgainorlossaccountiscarriedforwardto future periods.

20.     Adeclineinthefairvalueofatradingsecurityisrecordedbydebitinganunrealizedloss accountandcreditingtheMarketAdjustmentaccount.

21.     Ifthefairvalueofanavailable-for-salesecurityexceedsitscost,thesecurityshouldbe writtenup tofairvalueandarealizedgainshouldberecognized.

22.     TheMarketAdjustmentaccountcanonlyhavea creditbalanceora zero balance.

23.     Tobeclassifiedasashort-terminvestment,theinvestmentmustbereadilymarketable and intendedtobeconvertedinto cashwithinthenextyearor operatingcycle.

24.     Aninvestmentisreadilymarketableifit ismanagement'sintenttoselltheinvestment.

25.     StockstradedontheNewYork StockExchangeare consideredreadilymarketable.

Additional True-FalseQuestions

26.     Oneofthereasonsacorporationmaypurchaseinvestmentsisthat it hasexcesscash.

27.     Whenrecordingbondinterest,InterestReceivableisreportedasafixedassetinthe balance sheet.

28.     Underthecost method,the investmentisrecordedatcost andrevenueis recognizedonly when cashdividendsarereceived.

29.     Consolidatedfinancialstatementspresentacondensedversionofthefinancial statements so investorswillnot experienceinformationoverload.

30.     Available-for-salesecuritiesaresecuritiesboughtandheldprimarilyforsaleinthenear term togenerateincomeonshort-termpricedifferences.

31.     "Intenttoconvert"doesnotincludeaninvestmentusedasaresourcethatwillbeused whenever theneedfor casharises.







MULTIPLECHOICEQUESTIONS


32.     Corporationsinvestexcesscashforshortperiodsof timeineachof thefollowingexcept a.equitysecurities.
b.highlyliquidsecurities. c.low-risksecurities.
d.governmentsecurities.

33.     Corporationsinvestinother companiesfor allof thefollowingreasonsexceptto a.houseexcesscash untilneeded.
b.generateearnings.c.meetstrategicgoals.
d.increasetradingof theothercompanies’stock.

34.     A typicalinvestmenttohouseexcesscashuntilneeded is a.stocksof companies inarelatedindustry.
b.debtsecurities.
c.low-risk,highlyliquidsecurities. d.stocksecurities.

35.     A companymaypurchaseanoncontrollinginterest inanotherfirminarelatedindustry a.tohouseexcesscash until needed.
b.togenerateearnings. c.for strategicreasons.
d.for speculativereasons.

36.     Pensionfundsandmutualfundsregularlyinvestin debtandstocksecuritiesto a.generateearnings.
b.houseexcesscashuntilneeded. c.meetstrategicgoals.
d.controlthecompanyin whichtheyinvest.

37.     At thetimeofacquisitionofadebtinvestment, a.no journalentry isrequired.
b.thecostprincipleapplies.
c.theStockInvestments accountisdebitedwhenbondsarepurchased. d.the Investmentaccountiscreditedfor itscostplusbrokeragefees.

38.     Whichofthefollowingisnot atrue statement regardingshort-termdebtinvestments? a.Thesecuritiesusuallypayinterest.
b.Investmentsarefrequentlygovernmentor corporatebonds.
c.Thistypeofinvestmentmustbecurrentlytradedinthesecuritiesmarket. d.Anybondpremiumordiscount isamortizedtointerestrevenue.



Usethefollowing informationforquestions39–41.

OnJanuary1,2008,TurnerCompanypurchasedatfacevalue,a$1,000,7%bondthatpays interest onJanuary1andJuly1.TurnerCompanyhas a calendaryearend.
Investments     16-7

39.     TheentryforthereceiptofinterestonJuly1, 2008,is

a.Cash.....................................................................................                    35

InterestRevenue.........................................................                                      35

b.Cash.....................................................................................                    70
InterestRevenue.........................................................                                      70

c.InterestReceivable...............................................................                     35
InterestRevenue.........................................................                                      35

d.InterestReceivable...............................................................                    70
InterestRevenue.........................................................            

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