Acct 557 Chapter 12 quiz
Multiple Choice Question 92
 
On January 1, 2013, Audrey Corp. paid $800,000 for 100,000 shares of Off Company’s common stock, which represents 40% of Off’s outstanding common stock. Off reported net income of $200,000 and paid cash dividends of $60,000 during 2013. Audrey should report the investment in Off Company on its December 31, 2013, balance sheet at:

 
$856,000
 
$744,000
 
$824,000
 
$800,000
Multiple Choice Question 90
On August 1, Mistery Company buys 2,000 shares of ABC common stock for $70,000 cash plus brokerage fees of $2,200. On December 1, the stock investments are sold for $76,000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

 
Aug. 1 Cash  72,200  
 Stock Investments    72,200
Dec. 1 Cash  76,000  
 Stock Investments    72,200
 Gain on Sale of Stock Investments    3,800

 
Aug. 1 Stock Investments  72,200  
 Cash    72,200
Dec. 1 Stock Investments  76,000  
 Cash    72,200
 Gain on Sale of Stock Investments    3,800

 
Aug. 1 Stock Investments  72,200  
 Cash    72,200
Dec. 1 Cash  76,000  
 Stock Investments    72,200
 Gain on Sale of Stock Investments    3,800

 
Aug. 1 Cash  72,200  
 Stock Investments    72,200
Dec. 1 Stock Investments  76,000  
 Cash    72,200
 Gain on Sale of Stock Investments    3,800

Multiple Choice Question 91
 
Laramie industries owns 45% of McCook Company. For the current year, McCook reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Laramie’s equity in McCook’s net income and the receipt of dividends from McCook?

 
Dec. 31 Revenue from Stock Investments  112,500  
 Stock Investments    112,500
Dec. 31 Stock Investments  27,000  
 Cash    27,000

 
Dec. 31 Stock Investments  85,500  
 Revenue from Stock Investments    85,500

 
Dec. 31 Stock Investments  112,500  
 Revenue from Stock Investments    112,500
Dec. 31 Cash  27,000  
 Stock Investments    27,000

 
Dec. 31 Stock Investments  112,500  
 Revenue from Stock Investments    112,500
Dec. 31 Cash  60,000  
 Stock Investments    60,000

Multiple Choice Question 60
 
Tan Company had these transactions pertaining to stock investments:

Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $49,800 cash plus brokerage fees of $1,200.
June 1 Received cash dividends of $3 per share on Norton stock.
Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.

The entry to record the receipt of the dividends on June 1 would include a

 
debit to Stock Investments for $9,000.
 
credit to Dividend Revenue for $9,000.
 
credit to Stock Investments for $9,000.
 
debit to Dividend Revenue for $9,000.
Multiple Choice Question 78
 
Under the equity method, the Stock Investments account is increased when the

 
stock investment is sold at a gain.
 
investee company pays a dividend.
 
investee company reports net income.
 
investee company reports a loss.
Multiple Choice Question 125
 
Gorman Corporation has the following trading portfolio of stock investments as of December 31, 2013.
Security  Cost  Fair Value
A  $21,000  $ 19,000
B  19,000  25,000
C  37,000  31,000
  $77,000  $75,000
On January 22, 2014, Gorman Corporation sold security C for $32,000. Assuming that Gorman made the proper adjustments when closing its books on December 31, 2013, the journal entry for the 2014 sale would include a

 
credit to Fair Value Adjustment–Trading for $32,000.
 
credit to Unrealized Gain–Income for $1,000.
 
debit to Unrealized Loss–Income for $5,000.
 
debit to Loss on Sale of Stock Investments for $5,000.
Multiple Choice Question 99
 
A company that owns more than 50% of the common stock of another company is known as the

 
parent company.
 
subsidiary company.
 
management company.
 
charge company.
Multiple Choice Question 37
 
A typical investment to house excess cash until needed is

 
stocks of companies in a related industry.
 
debt securities.
 
low-risk, highly liquid securities.
 
stock securities.
Multiple Choice Question 146
 
Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

 
non-trading securities.
 
trading securities.
 
never-sell securities.
 
held-for-collection securities.
Multiple Choice Question 81
 
Revenue is recognized when cash dividends are received under

 
the controlling interest method.
 
both the cost and equity methods.
 
the cost method.
 
the equity method.
Multiple Choice Question 130
 
Which one of the following would not be classified as a short-term investment?

 
Short-term paper
 
Marketable stock securities
 
Equity method investments
 
Marketable debt securities
Multiple Choice Question 85
 
If a company acquires a 40% common stock interest in another company,

 
the ability to exert significant influence over the activities of the investee does not exist.
 
all influence is classified as controlling.
 
the cost method is usually applicable.
 
the equity method is usually applicable.
Multiple Choice Question 118
 
At the end of the first year of operations, the total cost of the trading securities portfolio is $244,000. Total fair value is $250,000. The financial statements should show

 
an addition to an asset of $6,000 and an unrealized gain of $6,000 in the stockholders’ equity section.
 
an addition to an asset of $6,000 in the current assets section and a realized gain of $6,000 in “Other revenues and gains.”
 
an addition to an asset of $6,000 and a realized gain of $6,000.
 
an addition to an asset of $6,000 in the current assets section and an unrealized gain of $6,000 in “Other revenues and gains.”
Multiple Choice Question 113
 
The balance in the Unrealized Loss—Equity account will

 
appear on the balance sheet as a contra asset.
 
appear as a deduction in the stockholders’ equity section.
 
appear on the income statement under Other Expenses and Losses.
 
not be shown on the financial statements until the securities are sold
Multiple Choice Question 63
 
Nickel Company owns 30% interest in the stock of Finn Corporation. During the year, Finn pays $25,000 in dividends, and reports $200,000 in net income. Nickel Company’s investment in Finn will increase by

 
$52,500.
 
$25,000.
 
$67,500.
 
$60,000.