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Exam 14: Understanding Investments in Debt and Equity Securities

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Question 21

Multiple Choice

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The present value of $10,000 to be received in 5 years will be smaller if the discount rate is

A) increased.
B) decreased.
C) not changed.
D) equal to the stated rate of interest.

E) A) and C)
F) All of the above

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Question 22

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Using the cost method of accounting for a stock investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

A) True
B) False

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Question 23

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If the cost of an available-for-sale security exceeds its fair value by $29,000, the entry to recognize the loss

For accounting purposes, the method used to account for investments in common stock is determined by

Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

Assume that Oslo Corp.acquires 30% of Celdon Corp.for $360,000 on January 1, 2022.The journal entry on Oslo's books assuming Celdon's net income for 2022 was $600,000 would include a debit to

Deutsche Corporation's portfolio of stock holdings of less than 20% at the end of the year is as follows:

Short-term investments are listed on the balance sheet immediately below

Compound interest is computed on the principal and any interest earned that has not been paid or received.

An investment is readily marketable if it is management's intent to sell the investment.

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

The account Fair Value Adjustment-Trading appears as a contra account in the income statement.

Buford Industries owns 40% of Appalachian Company.For the current year, Appalachian reports net income of $250,000 and declares and pays a $70,000 cash dividend.Which of the following correctly presents the journal entries to record Buford's equity in Appalachian net income and the receipt of dividends from Appalachian?

The future value of 1 factor will always be

All of the following factors would be signs of an investor's significant influence over an investee except

When the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account.

The valuation of available-for-sale securities is similar to the procedures followed for trading securities, except that changes in fair value are not recognized in current income.

Mazzeo Company acquires 80 Dodd's 10%, 5 year, $1,000 bonds on January 1, 2022 for $80,000.Assume Dodd's pays interest annually on January 1.Mazzeo's journal entry at December 31, 2022 would include a credit to