Question : Multiple Choice Questions 31. Which of the following the best description of : 1228451

Multiple Choice Questions
 

31. Which of the following is the best description of investments in trading securities? 
A. Investments in bonds that management intends to hold to maturity.
B. Investments in stocks or bonds that are held primarily for the purpose of selling them in the near future.
C. Investments in more than fifty percent of the voting stock of another company.
D. Investments that provides the investor significant influence over the investee, but not control over the investee.

32. Piano Company owns 55% of the voting common stock shares of Keys Corporation. Which of the following is true? 
A. The investment would be accounted for using the equity method.
B. The investment would be accounted for by consolidation.
C. The investment would be accounted for under the market value method.
D. The investment would be accounted for under the amortized cost method.

33. Which of the following is the best description of investments in available-for-sale securities? 
A. Investments in bonds that management intends to hold to maturity.
B. Investments in stocks or bonds that are held primarily for the purpose of selling them in the near future.
C. Investments in more than fifty percent of the voting stock of another company.
D. Investments in securities that are accounted for under the market value method other than trading securities and held-to-maturity investments.

34. Chang Corp. purchased $1,000,000 of bonds at par value on April 1, 2010. The bonds pay interest at the rate of 10%. Chang intends to hold these bonds to maturity. Which of the following statements is false? 
A. Since the bonds were issued at par value, the cash interest will be the same as interest revenue.
B. The bonds will earn $75,000 of interest by December 31, 2010.
C. The bond investment must be accounted for using the fair value approach.
D. Since they were classified as held-to-maturity, the company would recognize no unrealized gains or losses on the bonds over their lifetime.

35. Significant influence over the operating and financial policies of another company may be indicated by 
A. participation on its board of directors.
B. participation in its policy-making process.
C. evidence of material transactions between the two companies.
D. all of the above responses.

36. Use of the consolidated financial statement method of accounting for a long-term investment in common stock of another company is required when the ownership of its voting stock is 
A. 20% or more.
B. less than 20%.
C. between 20% and 50%.
D. more than 50%.

37. Miller Corp. purchased $1,000,000 of bonds at 105. The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity. Which of the following statements is false? 
A. Since the bonds were issued at a premium, the cash interest will be greater than interest revenue.
B. Since the bonds were issued at a premium, the book value of the bond investment will decrease.
C. The bond investment must be accounted for using the held-to-maturity classification.
D. The company would recognize unrealized gains or losses on the bonds under the fair value approach within the income statement.

38. Miller Corp. purchased $1,000,000 of bonds at 96. The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity. Which of the following statements is correct? 
A. Since the bonds were purchased at a premium, the cash interest will be less than interest revenue.
B. Since the bonds were purchased at a discount, the book value of the bond investment will increase.
C. The bond investment must be accounted for using the trading securities classification.
D. The company would not recognize unrealized gains or losses on the bonds.

39. Idaho Company purchased 30% of the outstanding preferred stock (nonvoting) of Potato Corporation as a long-term investment. Which of the following classifications should be used by Idaho Company in accounting for the investment? 
A. Trading securities.
B. Held-to-maturity.
C. Available-for-sale.
D. Consolidation.

40. Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1, 2010, at $40 per share as a long-term investment. The records of Burke Corporation showed the following on December 31, 2010:
  
At what amount should Gilman Company report the Burke investment on the December 31, 2010 balance sheet? 
A. $4,218,000
B. $4,000,000
C. $4,124,000
D. $3,800,000