Question : 101. Available-for-sale equity securities: A. Are recorded at cost when acquired. B. May earn dividends : 1225328

101. Available-for-sale equity securities: 

A. Are recorded at cost when acquired.

B. May earn dividends that are reported in that year’s income statement.

C. May be classified as either short-term or long-term securities.

D. Are reported at market value on the balance sheet.

E. All of these.

102. Morgan Company purchased 2,000 shares of Asta’s common stock for $143,000 as a long-term investment. The investment is classified as available-for-sale securities. The par value of the stock was $1 per share. Morgan paid $375 in commissions on the transaction. The entry to record the transaction would include a: 

A. Credit to Common Stock for $2,000.

B. Credit to Common Stock for $143,000.

C. Credit to Common Stock for $143,375.

D. Debit to Long-Term Investments-AFS for $143,000.

E. Debit to Long-Term Investments-AFS for $143,375.

103. Six months ago, a company purchased an investment in stock for $65,000. The investment is classified as available-for-sale securities. The current fair value of the stock is $68,500. The company should record a: 

A. Debit to Unrealized Loss-Equity for $3,500.

B. Credit to Unrealized Gain-Equity for $3,500.

C. Debit to Investment Revenue for $3,500.

D. Credit to Market Adjustment – Available-for-Sale for $3,500.

E. Credit to Investment Revenue for $3,500.

104. On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Beatrice’s year-end, the stock had a fair value of $20,000. Beatrice should record a: 

A. Credit to Unrealized Gain-Equity for $4,000.

B. Credit to Market Adjustment – Available-for-Sale for $4,000.

C. Credit to Investment Revenue for $4,000.

D. Debit to Investment Revenue for $4,000.

E. Debit to Unrealized Gain-Equity for $4,000.

105. On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $38,000. Carter should do all of the following except: 

A. Record an increase to the Fair value Adjustment-AFS account.

B. Record an increase to the Unrealized Gain – Equity account.

C. Report the increase in the equity section of the balance sheet.

D. Report the increase in the asset section of the balance sheet.

E. Record an increase to the Unrealized Gain – Income account.

106. If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment? 

A. Equity method.

B. Fair value method.

C. Historical cost method.

D. Cost with amortization method.

E. Effective method.

107. Vans purchased 40,000 shares of Skechs common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a: 

A. Debit to Long-Term Investments for $92,800.

B. Debit to Long-Term Investments for $232,000.

C. Credit to Long-Term Investments for $92,800.

D. Debit to Long-Term Investments-HTM for $232,000.

E. Debit to Short-Term Investment-AFS for $232,000.

108. Micron owns 35% of Martok. Martok pays a total of $47,000 in cash dividends for the period. Micron’s entry to record the dividend transaction would include a: 

A. Credit to Long-Term Investments for $16,450.

B. Debit to Long-Term Investments for $16,450.

C. Debit to Cash for $47,000.

D. Credit to Cash for $16,450.

E. Credit to Investment Revenue for $47,000.

109. Chung owns 40% of Lu’s common stock. Lu pays $97,000 in total cash dividends to its shareholders. Chung’s entry to record this transaction should include a: 

A. Debit to Dividends for $97,000.

B. Debit to Dividends for $38,800.

C. Debit to Long-Term investments for $97,000.

D. Credit to Long-Term Investments for $38,800.

E. Credit to Cash for $97,000.

110. Hamilton Company owns 51,000 of Hennie Company’s 100,000 outstanding shares of common stock. Hennie Company pays $25,000 in total cash dividends to its shareholders. Hamilton’s entry to record this transaction should include a: 

A. Debit to Dividend Revenue for $12,750.

B. Debit to Interest Revenue for $12,750.

C. Credit to Long-Term investments for $12,750.

D. Credit to Long-Term Investments for $25,000.

E. Credit to Dividend Revenue for $25,000.