Question :
Multiple Choice Questions
1.Equity investments are:
a.investments in bonds of a corporation.
b.investments : 1253669
Multiple Choice Questions
1.Equity investments are:
a.investments in bonds of a corporation.
b.investments that pay dividends, not interest.
c.classified as long-term liabilities.
d.marketed by the SEC to any investor who wishes to buy bonds of a public company.
2.Investments in equity securities are current assets if:
a.they can be sold and converted into cash on demand and a ready market exists.
b.the fair market value can’t be determined.
c.management intends to convert them into common stock within one year.
d.management owns less than 50% of the outstanding stock.
3.Income from trading and available-for-sale equity securities is recognized when:
a. dividends are received from the investee due to the uncertainty of payment.
b. dividends are declared by the investee.
c. adjusting entries are made to record fair value adjustments.
d.the investee reports profits for the accounting period.
4.When a company accounts for an investment under the purchase method of accounting,
a.the book value of the subsidiary’s assets is added to the parent company’s assets.
b.the book value of the subsidiary’s liabilities is added to the parent company’s liabilities.
c.the company obviously owns more than 50% of the stock of the investee.
d.a year-end adjustment is made to increase or decrease the carrying value of the investment to fair market value.
5.Trading securities are:
a.readily marketable investments that management intends to hold for extended periods.
b.always short-term investments.
c.current assets that require the equity method of accounting for investments.
d.actively ‘traded’ on the open market, but can’t be sold until they mature.
6.Available-for-sale securities are:
actively ‘traded’ on the open market, but can’t be sold until they mature.
readily marketable investments that management intends to sell for short-term profits.
always short-term investments in common stock.
adjusted to fair value at yearend.
7.Trading securities:
a.are recorded on the balance sheet at market value.
b.may have unrealized gains or losses on the balance sheet associated with price increases or decreases.
c.are listed as long-term assets.
d.Both a and b are correct.
8. Benson Incorporated owns 32% of Denver Company’s outstanding voting stock. Benson Incorporated should account for its investment in Denver using the:
a. fair value method.
b. cost method.
c. consolidation procedure.
d. equity method.
9.Dewey Inc. owns 64% of Felicity Corporation’s outstanding voting stock. Dewey should account for its investment in Felicity using the:
a. fair value method.
b. cost method.
c. consolidation procedure.
d. mark-to-market method
10.During 2010, the market price of trading securities declined. Which one of the following correctly reflects the effects on the financial statements as a result?
a. Current ratio and earnings per share decrease.
b. Current ratio and earnings per share increase.
c. Current ratio is unchanged and earnings per share increases.
d. Current ratio increases and earnings per share are unchanged.
