Question :
51. When accounting for investments in trading securities, any decline in : 1228453
51. When accounting for investments in trading securities, any decline in market value below 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.
52. The primary difference in accounting for available-for-sale investments in stock and accounting for trading investments in stock is which of the following?
A. Measuring the market value of the long-term and short-term investment portfolios on the balance sheet.
B. Determination of the acquisition cost.
C. Where the unrealized holding loss or gain on investments is reported within the financial statements.
D. Determination of the unrealized holding gain or loss.
53. On July 1, 2010, Carter Company purchased trading securities as follows:
Dark Corporation common stock (par $1) 10,000 shares at $25 per share.
Janvrin Corporation preferred stock (par $100) 2,000 shares at $105 per share.
The quoted market prices per share on December 31, 2010 were as follows:
Dark Corporation stock, $27 per share
Janvrin 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, 2010 should be
A. $478,000
B. $460,000
C. $458,000
D. $480,000
54. Which of the following is true about passive investments?
A. The investing company usually owns less than 20% of the voting stock in the investee and they are reported on the balance sheet at cost.
B. These investments must not have any voting rights.
C. The market value method requires realized gains and losses to be recognized on the income.
D. The investing company must usually own less than 20% of the voting stock in the investee and these investments must be reported at market value on the balance sheet even though the historical cost principal is violated.
55. Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock which constitutes 10% of Martin’s voting stock on June 30, 2010 for $42 per share. Phillips’ intent is to keep these shares beyond the current year. On December 20, 2010, Martin paid a $4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and their reported 2010 net income was $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.
56. Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock which constitutes 10% of Martin’s voting stock on June 30, 2010 for $42 per share. Phillips’ intent is to keep these shares beyond the current year. On December 20, 2010, Martin paid a $4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and their reported 2010 net income was $52 million. What effect will the dividend have on Phillips’ 2010 financial statements?
A. It would increase cash and increase investment income.
B. It would increase cash and decrease investment in associated companies.
C. It would increase cash and increase net unrealized gains/losses.
D. It would increase cash and increase the allowance to value at market account.
57. Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock which constitutes 10% of Martin’s voting stock on June 30, 2010 for $42 per share. Phillips’ intent is to keep these shares beyond the current year. On December 20, 2010, Martin paid a previously declared $4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and their reported 2010 net income was $52 million. What investment value will be reflected on Phillips’ balance sheet at December 31, 2010?
A. $42,000,000
B. $45,000,000
C. $46,800,000
D. $47,200,000
58. When is the equity method used to account for long-term investments in stocks?
A. When the investment is between 20 – 50% of the voting stock, regardless of whether or not significant influence can be achieved.
B. When the investment is greater than 50% of the voting stock, regardless of whether or not significant influence can be achieved.
C. When the investment is greater than 50% of the voting stock and significant influence can be achieved.
D. When the investment is between 20 – 50% of the voting stock and significant influence can be achieved.
59. Which of the following statements regarding the accounting for an investment using the equity method is incorrect?
A. It is used for investments between 20 – 50% of the outstanding voting stock when the investor has the ability to exert significant influence.
B. The investment account is increased by the proportionate share of investee net income.
C. The investment account is decreased by the proportionate share of investee dividends.
D. Investment income equals the proportionate share of investee dividends.
60. Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, accounted for using the equity method. During 2010, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2010. How much income should Heartfelt report during 2010 from the Candle investment?
A. $200,000.
B. $40,000.
C. $4,000.
D. $10,000.
