11) Centrex Corporation purchased 500 shares of Pfizer stock at $50 per share. The managers of Centrex Corporation intend to sell the shares as soon as their target price is reached, which will probably be within the next three months. During the holding period, the market price of the stock went down $5 per share. How should Centrex account for the change in value?
A) A footnote describing the decline in value should be part of the financial statements.
B) An unrealized loss of $2,500 should be shown on the income statement.
C) A realized loss of $2,500 should be shown on the income statement.
D) The decline should not be reported, since stock prices go up and down on a daily basis.
12) Centrex Corporation purchased 500 shares of Pfizer stock at $50 per share. The managers of Centrex Corporation intend to sell the shares as soon as their target price is reached, which will probably be within the next three months. During the holding period, the market price of the stock went up $5 per share. How should Centrex account for the change in value?
A) A footnote describing the increase in value should be part of the financial statements.
B) An unrealized gain of $2,500 should be shown on the income statement.
C) A realized gain of $2,500 should be shown on the income statement.
D) The gain should not be reported, since stock prices go up and down on a daily basis.
13) Which of the following might be classified as held-to-maturity securities?
A) only equity securities
B) only debt securities
C) both debt and equity securities
D) only investments in real estate
14) No matter how much these investments are actually worth, when the balance sheet is prepared these investments will always be reported at original cost, plus or minus any discount or premium amortization.
A) held-to-maturity securities
B) discretionary securities
C) trading securities
D) available-for-sale securities
15) Markot Corporation purchased $400,000 of securities and classified them as available-for-sale. The market value of the securities went down to $375,000. Markot Corporation should ________.
A) show these securities on its balance sheet at their market value
B) report a holding gain on its income statement
C) report a holding loss on its income statement
D) report an unrealized loss on its income statement
16) Markot Corporation purchased $400,000 of securities and classified them as available-for-sale. The market value of the securities went up to $475,000. Markot Corporation should ________.
A) show these securities on its balance sheet at their market value
B) report a holding gain on its income statement
C) report a holding loss on its income statement
D) report an unrealized gain on its income statement
17) An increase or decrease in the market value of a company’s investments in securities is ________.
A) a realized gain or loss
B) considered to be either other gain or other loss on the income statement
C) an unrealized gain or loss
D) treated as an operating income or expense
18) Firms must classify their investments in securities into one of three categories: held-to-maturity, trading, and available-for-sale.
19) If a company buys securities solely to trade them and to make a short-term profit, the securities are classified as available-for-sale securities.
20) Only investments in debt securities can be classified as held-to-maturity.
21) Only investments in equity securities can be classified as held-to-maturity.
22) An increase or decrease in the market value of a company’s investments in securities is an unrealized gain or loss.
23) Held-to-maturity securities are investments in debt securities that a company plans to hold until the securities mature.
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