Question : Multiple Choice 21. One of the primary reasons for investing in : 1255683

 

Multiple Choice

 

 

 

21. One of the primary reasons for investing in equity securities includes:

a. Acquiring debt of competing companies.

b. Appreciation in the value of the stock.

c. Earning interest revenue.

d. Deducting dividend payments for tax purposes.

 

 

22. One of the primary reasons for investing in debt securities includes:

a. Receiving dividend payments.

b. Acquiring significant influence.

c. Earning interest revenue.

d. Deducting interest payments for tax purposes.

 

 

23. Which of the following is true with regard to how to account for company A’s investment in company B’s common stock?

a. The fair value method is used when A owns more than 50% of B.

b. The equity method is used when A owns from 20% to 50% of B.

c. The consolidation method is used when A owns less than 20% of B.

d. All of the above are true. 

 

 

24. Libby Company purchased equity securities for $100,000 and classified them as trading securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

a. The investment in trading securities would be reported in the balance sheet at its $100,000 cost.

b. The investment in trading securities would be reported in the balance sheet at its $105,000 fair value.

c. An unrealized holding gain would be reported in other comprehensive income.

d. Both b. and c. are correct.

 

 

25. Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

a. The investment in available-for-sale securities would be reported in the balance sheet at its $100,000 cost.

b. The investment in available-for sale securities would be reported in the balance sheet at its $105,000 market value.

c. An unrealized holding gain would be reported in other comprehensive income.

d. Both b. and c. are correct.

 

 

26. Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly classified as a trading security. By the end of the year, the stock price has increased to $32 per share. How would the change in stock price affect Sports Spectacular’s net income?

a. Increase net income by $32,000.

b. Increase net income by $30,000.

c. Increase net income by $2,000.

d. No effect.

 

 

27. Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly classified as an available-for-sale security. By the end of the year, the stock price has increased to $32 per share. How would the change in stock price affect Sports Spectacular’s net income?

a. Increase net income by $32,000.

b. Increase net income by $30,000.

c. Increase net income by $2,000.

d. No effect.

 

 

28. The primary difference in accounting for available-for-sale securities and accounting for trading securities is:

a.

Measuring the fair value of the long-term and short-term stock portfolios.

b.

Computing the cost at acquisition.

c.

Determining where the unrealized holding gain or loss on investments is reported in the financial statements; in current net income or in comprehensive income.

d.

Accounting for dividends received.

 

 

29. At the beginning of the year, Gilman Company purchased 10,000 of the 200,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment. The records of Burke Corporation showed the following by the end of the year:

Net Income

$500,000

Dividends Paid

$200,000

Market Price per Share

$38

What amount should Gilman Company report in its year-end balance sheet for its investment in Burke?

a.

$380,000.

b.

$400,000.

c.

$415,000.

d.

$425,000.

 

 

30. When the equity method of accounting for investments is used by the investor, the Investments account increases when: a. A cash dividend is received from the investee.b. The investee reports a net income for the year.c. The investor records additional depreciation related to the investment.d. The investee reports a net loss for the year.