 |
| 1 | |
A company purchases seven, $1,000 face amount bonds as an investment on October 1st of the current year. It pays face amount for the bonds and is going to hold them to maturity. The annual interest rate on the bonds is 6% and interest is paid on November 1st and May 1st of each year. If the investor's accounting period ends on December 31st of each year, how much Bond Interest Revenue will it accrue on December 31st of the current year? |
| | A) | $50. |
| | B) | $60. |
| | C) | $70. |
| | D) | $75. |
| | E) | None of the above. |
|
|
|
| 2 | |
George Corporation owns 30% of the non-voting preferred stock of the Stanley Corporation and has done so for all of the current year. In June, the company receives $3,000 of cash dividends on this preferred stock. Part of the journal entry to record the receipt of these dividends appears below. Which item is correct? |
| | A) | A credit to Cash for $3,000. |
| | B) | A credit to the Investment in Preferred Stock: Stanley Corporation account. |
| | C) | A debit to the Investment in Preferred Stock: Stanley Corporation account. |
| | D) | A credit to Dividend Revenue. |
| | E) | None of the above. |
|
|
|
| 3 | |
For accounting purposes, investments are divided into five classes, and the characteristics of each class are fairly distinct. However, one of these five classes of securities is somewhat of a vague category in that securities not meeting the specific criteria of one of the other four classifications will default into the fifth category. Which investment category is the default category? |
| | A) | Trading securities. |
| | B) | Significant-influence securities. |
| | C) | Controlling-influence securities. |
| | D) | Available-for-sale securities. |
| | E) | Held-to-maturity securities. |
|
|
|
| 4 | |
What range of voting common stock ownership by the investor is sufficient to make the presumption that the investor can exert significant influence over the investee? |
| | A) | Any percentage greater than zero but less than 20%. |
| | B) | Any percentage greater than zero and up to and including 20%. |
| | C) | More than 20% but not more than 50%. |
| | D) | At least 20% but not more than 50%. |
| | E) | None of the above. |
|
|
|
| 5 | |
Which method of accounting is used when the investor corporation owns more than 50% of the voting common stock of another corporation? |
| | A) | The cost method. |
| | B) | The equity method without consolidation. |
| | C) | The method whereby the investment is periodically marked up to or down to fair market value. |
| | D) | The equity method with consolidation. |
| | E) | None of the above. |
|
|
|
| 6 | |
For held-to-maturity debt securities where the investor has paid more that the maturity value for the security and intends to hold the security to maturity, a receipt of interest income from the investee requires a journal entry that includes which of the following? |
| | A) | A debit to Cash for the interest received. |
| | B) | A debit to Interest Earned. |
| | C) | A debit to Held-to-Maturity Investments to amortize the implied premium. |
| | D) | A & C. |
| | E) | A & B. |
|
|
|
| 7 | |
Which of the following is true about short-term investments? |
| | A) | They are also called marketable securities. |
| | B) | Only debt securities can be classified as short-term investments. |
| | C) | Management intends to convert the securities to cash within one year or the current operating cycle. |
| | D) | They are also called temporary investments. |
| | E) | All of the above are true except for item B. |
|
|
|
| 8 | |
For available-for-sale securities, the receipt of dividends from the investee (not previously accrued as Dividends Receivable) requires a journal entry that includes which of the following? |
| | A) | A credit to Dividend Revenue. |
| | B) | A credit to Available-for-Sale Securities. |
| | C) | A credit to Cash. |
| | D) | A debit to Loss on Sale of Available-for-Sale Securities. |
| | E) | A debit to Dividend Revenue. |
|
|
|
| 9 | |
Boromir, Inc. has 18% of the voting common stock of Legolas Corporation that it plans to hold for at least three years. It has been determined that due to the high incidence of shareholders choosing not to attend the annual Legolas shareholder meetings that an 18% interest in the common stock of Legolas will allow Boromir to exercise significant influence. How should these securities be classified on the balance sheet of Boromir? |
| | A) | Trading securities. |
| | B) | Available-for-sale securities. |
| | C) | Held-to-maturity securities. |
| | D) | Equity method securities without consolidation. |
| | E) | None of the above. |
|
|
|
| 10 | |
The cost of trading securities was $65,000. On the balance sheet date, the fair market value of the securities was $68,500. This holding is the first time the company has ever invested in securities so there is no current balance in the Market Adjustment: Trading Securities account. The proper end-of-the-year adjusting entry would include which of the following? |
| | A) | A credit to Market Adjustment – Trading Securities, $3,500. |
| | B) | A credit to Unrealized Loss – Trading Securities, $3,500. |
| | C) | A debit to Market Adjustment – Trading Securities, $3,500. |
| | D) | A debit to Unrealized Gain – Trading Securities, $3,500. |
| | E) | None of the above. |
|
|
|
| 11 | |
Janet Corporation purchased a long-term investment in equity securities and can exercise significant influence over the investee. Janet owns 45% of the voting stock of the investee company, which reported a net loss of $50,000 for the year. Which of the following would be included in the journal entry made by Janet to record its portion of the investee's net income or loss? |
| | A) | Dividend Income, credit, $22,500. |
| | B) | Earnings from Long-Term Investment, credit $22,500. |
| | C) | Earnings from Long-Term Investment, credit $50,000. |
| | D) | Long-Term Investment, credit, $22,500. |
| | E) | Earnings Receivable, debit, $22,500. |
|
|
|
| 12 | |
Which of the following will increase the return on total assets from one year to the next? |
| | A) | An increase in total asset turnover and an increase in profit margin. |
| | B) | An increase in total asset turnover and no change in profit margin. |
| | C) | No change in total asset turnover and an increase in profit margin. |
| | D) | A decrease in total asset turnover and an increase in profit margin that is significantly greater than the decrease in total asset turnover. |
| | E) | All of the above. |
|
|
|
| 13 | |
A company based in the U.S. keeps its books in U.S. dollars. On October 1, 2011, it sells some goods to a firm located in Japan. If the Japanese firm agrees to satisfy its account payable to the U.S. firm by remitting Japanese yen no later than January 10, 2012, which of the following statements is true? |
| | A) | The firm based in the U.S. has accepted the foreign-exchange risk. |
| | B) | The Japanese firm has accepted the foreign exchange risk. |
| | C) | There is no foreign exchange risk inherent in this transaction. |
| | D) | Foreign exchange risk could only occur if the both the Japanese company and the company based in the U.S. kept their books in U.S. dollars. |
| | E) | None of the above. |
|
|
|
| 14 | |
A US-based company ends its accounting period on December 31st of each year. It has entered into a transaction with a German firm on November 1, 2011, in which it sold inventory to the German firm on credit. The US-based company's account receivable will not be paid until the next accounting period. The US-based firm has agreed to accept German currency in payment of the US-based account receivable. If the exchange rate has decreased since the transaction was first recorded so that it takes more US dollars to buy German euros, which statement about the end-of-the-period adjusting entry will be true? |
| | A) | The US-based company will record an unrealized gain on December 31, 2011. |
| | B) | The US-based company will record an unrealized loss on December 31, 2011. |
| | C) | The US-based company will record a realized loss on December 31, 2011. |
| | D) | The US-based company will record a realized gain on December 31, 2011. |
| | E) | None of the above. |
|
|
|
| 15 | |
A multinational corporation based in the United States sold goods to United Kingdom, Ltd. when the exchange rate was $2.00 to 1 Pound Sterling. The accountant debited Accounts Receivable—United Kingdom, Ltd. for $42,000 and credited Sales for the same amount. United Kingdom, Ltd. paid the receivable when the exchange rate was $2.07 to 1 Pound Sterling. What is the amount of foreign exchange gain or loss? |
| | A) | $ 1,470 gain. |
| | B) | $ 1,470 loss. |
| | C) | $ 1,420 gain. |
| | D) | $ 1,420 loss. |
| | E) | None of the above. |
|
|
.