Strayer ACC 557 Week 9 Chapter 12 Quiz

This Tutorial contains All possible Questions from this chapter

Question no 1

Eck Corporation sells 250 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Eck sold the shares for $40 a share. The entry to record the sale is

• Cash 10,000
  Gain on Sale of Stock Investments 3,750
  Stock Investments 6,250
  Stock Investments 10,000
• Cash 10,000
  Cash 10,000
  Stock Investments 10,000
• Cash 6,250
  Loss on Sale of Stock Investments 3,750
  Stock Investments 10,000

Question no 2

On January 1, Talent Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?

• Cash 1,200
  Debt Investments 1,200
• Cash 1,220
  Debt Investments 1,050
  Gain on Sale of Debt Investments 150
  Interest Revenue 20
• Cash 1,220
  Debt Investments 1,200
  Interest Revenue 20
• Cash 1,200
  Debt Investments 1,050
  Gain on Sale of Debt Investments 150

Question no 3

At the end of its first year, the trading securities portfolio consisted of the following common stocks.
Cost Fair Value
Atrium Corporation $ 46,400 $ 50,000
Barnes Inc. 60,000 55,800
Cantor Corporation 80,000 76,000
$186,400 $181,800
In the following year, the Barnes common stock is sold for cash proceeds of $56,000. The gain or loss to be recognized on the sale is a

• loss of $4,000.
• gain of $1,200.
• gain of $200.
• loss of $4,200.

Question no 4

At the time of acquisition of a debt investment,

• the Stock Investments account is debited when bonds are purchased.
• the Investment account is credited for its cost plus brokerage fees.
• no journal entry is required.
• the cost principle applies.

Question no 5

The account, Stock Investments, is

• a general ledger control account.
• another name for Debt Investments.
• a subsidiary ledger account.
• a long-term liability account.

Question no 6

Tan Company had these transactions pertaining to stock investments:
Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $48,800 cash plus brokerage fees of $1,400.
June 1 Received cash dividends of $2 per share on Norton stock.
Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.
The entry to record the purchase of the Norton stock would include a

• credit to Cash for $48,800.
• debit to Stock Investments for $48,800.
• debit to Stock Investments for $50,200.
• debit to Investment Expense for $1,400.

Question no 7

Mission Inc. earns $450,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.
How much revenue from an investment should Cox report in 2013?

• $150,000
• $200,000
• $50,000
• $100,000

Question no 8

Which of the following reasons best explains why a company that experiences seasonal fluctuations in sales may purchase investments in debt or stock securities?

• The company may have excess cash.
• The company may invest for speculative reasons to increase the value in pension funds.
• The company may generate a significant portion of its earnings from investment income.
• The company may invest in the strategic reason for establishing a presence in a related industry.

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Question no 9

The balance sheet presentation of an unrealized loss on non-trading security is similar to the statement presentation of

• treasury stock.
• discount on bonds payable.
• prepaid expenses.
• allowance for doubtful accounts.

Question no 10

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

• the significant method.
• the equity method.
• consolidated financial statements.
• the cost method.

Question no 11

Which of the following is not a true statement regarding short-term debt investments?

• Investments are frequently government or corporate bonds.
• The securities usually pay interest.
• This type of investment must be currently traded in the securities market.
• Debt investments are recorded at the price paid less brokerage fees.

Question no 12

Revenue is recognized when cash dividends are received under

• the cost method.
• the equity method.
• the controlling interest method.
• both the cost and equity methods.

Question no 13

An unrealized loss on non-trading securities is

• closed-out at the end of the accounting period.
• deducted from the cost of the investment.
• reported as a separate component of stockholders’ equity.
• reported under Other Expenses and Losses in the income statement.

Question no 14

Mission Inc. earns $600,000 and pays cash dividends of $150,000 during 2013. Cox Corporation owns 70,000 of the 210,000 outstanding shares of Mission.
What amount should Cox show in the investment account at December 31, 2013 if the beginning of the year balance in the account was $40,000?

• $190,000
• $200,000
• $175,000
• $180,000

Question no 15

The contra-account, Fair value Adjustment, is also called a(n)

• valuation account.
• offset account.
• opposite account.
• adjustment account.