Algorithmic Investments | Test Bank – 10th Edition

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Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Long-term investments are usually held as an investment of cash for use in current operations.

⊚ true
⊚ false

2) Land used in the company’s operations is reported as a long-term investment.

⊚ true
⊚ false

3) Short-term investments are also called marketable securities.

⊚ true
⊚ false

4) Equity securities reflect a creditor relation such as investments in notes, bonds, and certificates of deposit.

⊚ true
⊚ false

5) Cash equivalents usually mature within three months.

⊚ true
⊚ false

6) Short-term investments are investments that management intends to convert to cash within one year or the operating cycle, whichever is longer, and are readily convertible to cash.

⊚ true
⊚ false

7) Long-term investments include investments in land or other assets not used in a company's operations.

⊚ true
⊚ false

8) Debt investments are recorded at cost when purchased.

⊚ true
⊚ false

9) Debt investments are recorded at cost when purchased, and interest revenue for debt investments is recorded when earned.

⊚ true
⊚ false

10) Any cash dividends received from stock investments with insignificant influence are recorded as Dividend Expense.

⊚ true
⊚ false

11) An investor typically has insignificant influence over another company when it owns less than 20% of the other company’s voting stock.

⊚ true
⊚ false

12) A company received dividends of $0.35 per share on 300 shares of stock it holds as a stock investment with insignificant influence. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

⊚ true
⊚ false

13) An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Debt Investments—HTM for $50,000 and a credit to Cash for $50,000.

⊚ true
⊚ false

14) A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

⊚ true
⊚ false

15) If a company has a controlling influence over another company, the controlling investor is called the parent, and the investee is called the subsidiary.

⊚ true
⊚ false

16) When an investor company owns between 20% and 50% of the voting stock of an investee company, it has a controlling influence.

⊚ true
⊚ false

17) The consolidation method is used to account for long-term investments in equity securities with controlling influence.

⊚ true
⊚ false

18) When the cost of a short-term trading debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

⊚ true
⊚ false

19) Trading debt securities are reported as long-term assets.

⊚ true
⊚ false

20) Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

⊚ true
⊚ false

21) Consolidated financial statements show the financial statements of all entities under the parent’s control, including all subsidiaries.

⊚ true
⊚ false

22) When consolidated financial statements are prepared, the individual assets and liabilities of the parent company and its subsidiaries are reported on separate balance sheets.

⊚ true
⊚ false

23) Equity securities giving an investor significant influence over an investee are always considered short-term investments.

⊚ true
⊚ false

24) The consolidation method is used to account for investments in equity securities with insignificant influence.

⊚ true
⊚ false

25) Debt securities reflect an owner relation such as investments in shares of stock issued by companies.

⊚ true
⊚ false

26) The equity method is used to account for long-term investments in equity securities with significant influence.

⊚ true
⊚ false

27) The Unrealized Gain (or Loss) – Income account is a temporary account that is closed to the Income Summary account at the end of each period.

⊚ true
⊚ false

28) Return on total assets can be separated into two components, profit margin and total asset turnover.

⊚ true
⊚ false

29) Profit margin is net sales divided by operating income.

⊚ true
⊚ false

30) Profit margin reflects the percent of net income in each dollar of net sales.

⊚ true
⊚ false

31) All companies desire a low return on total assets.

⊚ true
⊚ false

32) A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its profit margin equals 7.5%.

⊚ true
⊚ false

33) A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover equals 4.7%.

⊚ true
⊚ false

34) A company should report its portfolio of trading debt securities at its fair value.

⊚ true
⊚ false

35) Trading securities are debt securities a company plans to hold long-term, possibly until maturity.

⊚ true
⊚ false

36) Trading debt securities are always reported as current assets.

⊚ true
⊚ false

37) Any unrealized gain or loss from a change in the fair value of the portfolio of trading debt securities is reported on the income statement.

⊚ true
⊚ false

38) Held-to-maturity securities are equity securities a company intends to hold until dividends have been paid.

⊚ true
⊚ false

39) Investments in held-to-maturity debt securities are always current assets.

⊚ true
⊚ false

40) Held-to-maturity securities are recorded at cost when purchased, and interest revenue is recorded when earned.

⊚ true
⊚ false

41) If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is always classified as short-term.

⊚ true
⊚ false

42) Debt investments not classified as trading or held-to-maturity securities are called available-for-sale securities.

⊚ true
⊚ false

43) Management's intent determines whether an available-for-sale security is classified as long-term or short-term.

⊚ true
⊚ false

44) Any unrealized gain or loss for the portfolio of available-for-sale debt securities is reported in the equity section of the balance sheet.

⊚ true
⊚ false

45) Stock investments are classified as short or long term based on managers’ intent and the stock’s marketability.

⊚ true
⊚ false

46) When individual AFS securities are sold, the difference between the cost of the individual securities sold and the net proceeds (sale price less fees) is recorded as a gain or loss on sale of debt investments.

⊚ true
⊚ false

47) Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

⊚ true
⊚ false

48) Available-for-sale securities are reported at fair value on the balance sheet.

⊚ true
⊚ false

49) Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

⊚ true
⊚ false

50) On May 1, Jorge Company purchases notes of Radiotech for $25,000. This investment is considered to be an available-for-sale debt investment. This is the company’s first and only investment in available-for-sale debt securities. On July 31 (Jorge’s year-end), the notes had a fair value of $28,000. Jorge should record a credit to Unrealized Gain—Equity for $3,000.

⊚ true
⊚ false

51) On May 15, Tumbleweed, Incorporated purchased notes of Dansell Corporation for $80,000. This is considered to be an available-for-sale debt investment. This is the company’s first and only investment in available-for-sale debt securities. On Tumbleweed’s September 30 year-end, the notes had a fair value of $85,000. The $5,000 difference in fair value must be reported on Tumbleweed’s income statement as a $5,000 unrealized gain.

⊚ true
⊚ false

52) An investor who owns between 20% and 50% of another company's voting stock usually has significant influence.

⊚ true
⊚ false

53) The cost method of accounting, which does not adjust for changes in fair value, is used to account for long-term investments in equity securities with insignificant influence.

⊚ true
⊚ false

54) When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

⊚ true
⊚ false

55) Hamasaki Company owns 30% of CDW Corporation stock and has significant influence. Hamasaki received $6,500 in cash dividends from its investment in CDW. The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Equity Method Investments for $6,500.

⊚ true
⊚ false

56) When using the equity method, receipt of cash dividends increases the book value of an investment in equity securities.

⊚ true
⊚ false

57) The journal entry to record the purchase of a debt investment consists of a debit to Debt Investments and a credit to Cash.

⊚ true
⊚ false

58) Trading securities are debt investments that a company actively buys and sells for profit.

⊚ true
⊚ false

59) Held-to-maturity (HTM) securities are debt securities that a company intends and is able to hold until maturity.

⊚ true
⊚ false

60) A company received dividends of $0.50 per share on 1,000 shares of common stock it holds. It is presumed that this equity investment has insignificant influence. The journal entry to record this dividend receipt would consist of a debit to Cash for $500 and credit to Dividend Revenue for $500.

⊚ true
⊚ false

61) Washington Company owns 40% of Jefferson Corporation’s stock and has significant influence. Washington received $10,000 in cash dividends from its investment in Jefferson. The entry to record receipt of these dividends includes a debit to Cash for $10,000 and a credit to Dividend Revenue for $10,000.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.
62) Long-term investments:

A) Are current assets.
B) Can include funds designated for a special purpose, such as investments in land not used in the company’s operations.
C) Must be readily convertible to cash.
D) Are expected to be converted into cash within one year.
E) Include only equity securities.

63) Short-term investments include:

A) Securities that management intends to convert to cash within one year or the operating cycle, whichever is longer, and are readily convertible to cash.
B) Funds earmarked for a special purpose such as bond sinking funds.
C) Stocks not intended to be converted into cash.
D) Bonds not intended to be converted into cash.
E) Sinking funds not intended to be converted into cash.

64) Long-term investments are reported in the:

A) Current asset section of the balance sheet.
B) Intangible asset section of the balance sheet.
C) Non-current section of the balance sheet called long-term investments.
D) Plant assets section of the balance sheet.
E) Equity section of the balance sheet.

65) Long-term investments include:

A) Investments that are not readily convertible to cash or are not intended to be converted to cash in the short term.
B) Investments in marketable stocks that are intended to be converted into cash in the short-term.
C) Investments in marketable bonds that are intended to be converted into cash in the short-term.
D) Only investments readily convertible to cash.
E) Investments intended to be converted to cash within one year.

66) Strickland Corporation has invested in debt securities. Strickland intends to actively buy and sell this investment for profit. This investment is classified as:

A) an available-for-sale security.
B) a held-to-maturity security.
C) a trading security.
D) a significant influence security.
E) a controlling influence security.

67) Which of the following statements regarding stock investments with insignificant influence is false?

A) They are recorded at cost when acquired.
B) They are valued at fair value.
C) They report a realized gain (or loss) in a permanent asset account, Fair Value Adjustment—Stock.
D) They report any unrealized gain (or loss) in the income statement.
E) They are adjusted to fair value at the end of each period.

68) Which of the following about debt securities is false?

A) They can be short-term investments.
B) They can be long-term investments.
C) They can have a cost higher than the maturity value.
D) They can have a cost lower than the maturity value.
E) They reflect an owner relationship.

69) At acquisition, debt securities are:

A) Recorded at their cost, plus total interest that will be received over the life of the security.
B) Recorded at the amount of interest that will be received over the life of the security.
C) Recorded at cost.
D) Not recorded, because no interest is due yet.
E) Recorded at cost plus the amount of dividend income to be received.

70) At the end of the accounting period, the owners of debt securities:

A) Must report the dividend income accrued on the debt securities.
B) Must retire the debt.
C) Must record a gain or loss on the interest income earned.
D) Must record a gain or loss on the dividend income earned.
E) Must record any interest earned on the debt securities during the period.

71) A company has an investment in 11% bonds with a par value of $108,000 that pays interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $990.
B) $1,980.
C) $11,880.
D) $2,970.
E) $5,940.

72) A company has an investment in 9% bonds with a par value of $100,000 that pays interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $750.
B) $1,500.
C) $2,250.
D) $4,500.
E) $9,000.

73) Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. Roe’s entry to record the receipt of these dividends is:

A) Debit Cash, $8,000; credit Long-Term Investments, $8,000.
B) Debt Long-Term Investment, $8,000; credit Cash, $8,000.
C) Debit Cash, $8,000; credit Dividend Revenue, $8,000.
D) Debit Unrealized Gain-Equity, $8,000; credit Cash, $8,000.
E) Debit Cash, $8,000; credit Interest Revenue, $8,000.

74) A company purchased $105,000 of 6% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $5,250.
B) $3,150.
C) $1,050.
D) $2,625.
E) $2,100.

75) A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $1,000.
B) $500.
C) $1,250.
D) $2,500.
E) $1,500.

76) A company paid $35,800 to acquire 9% bonds with a $38,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

A) $35,800.
B) $41,420.
C) $36,275.
D) $38,475.
E) $38,000.

77) A company paid $37,800 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

A) $37,800.
B) $38,325.
C) $40,000.
D) $40,525.
E) $43,200.

78) A company paid $37,800 cash to acquire stock investments with insignificant influence. The correct entry to record the purchase of the investment is:

A) Debit Stock Investments $37,800; credit Cash $37,800.
B) Debit Cash $37,800; credit Consolidation Method Investments $37,800.
C) Debit Cash $37,800; credit Equity Method Investments $37,800.
D) Debit Equity Method Investments $37,800; credit Cash $37,800.
E) Debit Stock Investments $37,800; credit Equity Method Investments $37,800.

79) Kendall Corporation purchased at par value, $75,000 of Shrem Company’s 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry (assume the semiannual interest was separately recorded):

A) Debit Long-Term Investments—HTM, $75,000; credit Cash, $75,000.
B) Debit Cash, $6,000; credit, Unrealized Gain—Equity, $6,000.
C) Debit Cash, $75,000; credit Debt Investments—HTM, $75,000.
D) Debit Unrealized Gain—Equity, $6,000; credit Cash, $6,000.
E) Debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.

80) Kendall Corporation purchased $160,000 of Barker Company’s 7% bonds at par value that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. The journal entry to record Kendall’s purchase of the bonds is:

A) Debit Debt Investments—HTM $160,000; Credit Cash, $160,000.
B) Debit Cash, $169,333; Credit, Short-Term Investments—HTM $169,333.
C) Debit Cash, $160,000; Credit Short-Term Investments—HTM $160,000.
D) Debit Long-Term Investments—HTM $160,000; Credit Cash $160,000.
E) Debit Cash, $160,000; Credit Long-Term Investments—HTM $160,000.

81) Barnes Company purchased $82,000 of 11.5% bonds at par. The bonds mature in six years and are classified as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

A) Debit Cash, $9,430; Credit Long-Term Investments—HTM, $9,430.
B) Debit Cash, $9,430; Credit Unrealized Gain—Equity, $9,430.
C) Debit Cash, $4,715; Credit Long-Term Investments—HTM, $4,715.
D) Debit Unrealized Gain—Equity, $4,715; Credit Cash, $4,715.
E) Debit Cash, $4,715; Credit Interest Revenue, $4,715.

82) Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and are classified as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

A) Debit Cash, $4,000; Credit Long-Term Investments—HTM, $4,000.
B) Debit Cash, $2,000; Credit Long-Term Investments—HTM, $2000.
C) Debit Cash, $2,000; Credit Interest Revenue, $2,000.
D) Debit Unrealized Gain—Equity, $2,000; Credit Cash, $2,000.
E) Debit Cash, $4,000; Credit Unrealized Gain—Equity, $4,000.

83) Accounting for long-term investments in equity securities with controlling influence uses the:

A) Controlling method.
B) Consolidation method.
C) Investor method.
D) Investment method.
E) Trading method.

84) The controlling investor of a long-term investment with controlling interest is called the:

A) Owner.
B) Subsidiary.
C) Parent.
D) Investee.
E) Senior entity.

85) The investee company in a long-term investment with controlling interest is called the:

A) Owner.
B) Subsidiary.
C) Parent.
D) Creditor.
E) Senior entity.

86) A controlling influence over the investee is based on the investor owning voting stock exceeding:

A) 10%.
B) 20%.
C) 30%.
D) 40%.
E) 50%.

87) Long-term investments cannot include:

A) Held-to-maturity debt securities.
B) Securities with maturity dates within three months.
C) Equity securities giving an investor insignificant influence over an investee.
D) Equity securities giving an investor significant influence over an investee.
E) Available-for-sale debt securities.

88) Consolidated financial statements:

A) Show the financial statements of all entities under the parent’s control, including all subsidiaries.
B) Show the results of operations, cash flows, and the financial position of the parent only.
C) Show the results of operations, cash flows, and the financial position of the subsidiary only.
D) Include line items for investments in the subsidiaries on the balance sheet.
E) Do not include a balance sheet.

89) Comprehensive income does not include:

A) Revenues and expenses reported in the income statement.
B) Dividends paid to shareholders.
C) Unrealized gains and losses on long-term available-for-sale securities.
D) All changes in equity for a period except those due to investments and distributions to owners.
E) Gains and losses reported in the income statement.

90) Short-term investments in held-to-maturity debt securities are accounted for using the:

A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Consolidation method.
D) Cost method without amortization.
E) Equity method.

91) Long-term investments in held-to-maturity debt securities are accounted for using the:

A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Consolidation.
D) Cost method with amortization.
E) Equity method.

92) Advanced Sports Medicine purchases 55% of the voting common stock of Athletics Incorporated After the purchase, Advanced Sports Medicine has a controlling influence over Athletics Incorporated. Which method does Advanced Sports Medicine use to account for its investment in Athletics Incorporated?

A) Consolidation method.
B) Equity method.
C) Comprehensive income method.
D) Equity investments method.
E) Debt investments method.

93) Advanced Sports Medicine purchases 55% of the voting common stock of Athletics Incorporated After the purchase, Advanced Sports Medicine has a controlling influence over Athletics Incorporated. What type of financial statements does Advanced Sports Medicine prepare after the acquisition?

A) Parent company financial statements.
B) Subsidiary financial statements.
C) Consolidated financial statements.
D) Comprehensive income statements.
E) Controlling influence financial statements.

94) Which of the following is an equity security?

A) U.S. Treasury bonds.
B) Corporate notes.
C) Corporate bonds.
D) Municipal bonds.
E) Company common stock.

95) DeRozen Company purchases 1,000 common shares (40%) of Tours of Toronto Incorporated as a long-term investment for $100,000 cash on July 1. Tours of Toronto paid $15,000 in total cash dividends on November 1 and reported net income of $150,000 for the year. Prepare DeRozen’s journal entry to record the purchase of common shares from Tours of Toronto.

A) Debit Stock Investments $100,000; Credit Cash $100,000.
B) Debit Equity Method Investments $15,000; Credit Cash $15,000.
C) Debit Cash $100,000; Credit Equity Method Investments $100,000.
D) Debit Equity Method Investments $100,000; Credit Cash $100,000.
E) Debit Stock Investments $15,000; Credit Equity Method Investments $15,000.

96) DeRozen Company purchases 1,000 common shares (40%) of Tours of Toronto Incorporated as a long-term investment for $100,000 cash on July 1. Tours of Toronto paid $15,000 in total cash dividends on November 1 and reported net income of $150,000 for the year. Prepare DeRozen’s journal entry to record the receipt of its share of Tours of Toronto’s November 1 dividends.

A) Debit Cash $15,000; Credit Equity Method Investments $15,000.
B) Debit Cash $6,000; Credit Dividend Revenue $6,000.
C) Debit Equity Method Investments $15,000; Credit Cash $15,000.
D) Debit Cash $6,000; Credit Equity Method Investments $6,000.
E) Debit Dividend Revenue $6,000; Credit Equity Method Investments $6,000.

97) DeRozen Company purchases 1,000 common shares (40%) of Tours of Toronto Incorporated as a long-term investment for $100,000 cash on July 1. Tours of Toronto paid $15,000 in total cash dividends on November 1 and reported net income of $150,000 for the year. Prepare DeRozen’s journal entry to record the December 31 year-end adjustment for its share of Tours of Toronto’s net income.

A) Debit Equity Method Investments $150,000; Credit Earnings from Equity Method Investments $150,000.
B) Debit Equity Method Investments $60,000; Credit Earnings from Equity Method Investments $60,000.
C) Debit Stock Investments $60,000; Credit Earnings from Equity Method Investments $60,000.
D) Debit Equity Method Investments $150,000; Credit Cash $150,000.
E) Debit Cash $60,000; Credit Earnings from Equity Method Investments $60,000.

98) On May 7, Lowry Corporation purchases Helpful Hardware bonds as a short-term investment in trading securities at a cost of $22,000. On June 15, Lowry sells its entire investment in Helpful Hardware bonds for $24,000 cash. The journal entry to record the sale of Helpful Hardware bonds includes a:

A) Credit to Cash for $24,000.
B) Debit to Cash for $22,000.
C) Debit to Gain on Sale of Debt Investments for $2,000.
D) Credit to Gain on Sale of Debt Investments for $2,000.
E) Debit to Debt Investments – Trading for $22,000.

99) Select the correct statement from the following:

A) Profit margin reflects a company's ability to produce net sales from total assets.
B) Total asset turnover reflects the percent of net income in each dollar of net sales.
C) Return on total assets can be separated into the gross margin ratio and debt ratio.
D) A high return on total assets is desirable.
E) Analysis of return on total assets is not beneficial in evaluating profitability.

100) Cloverton Corporation had net income of $42,000, net sales of $1,500,000, and average total assets of $600,000. Its return on total assets is:

A) 1.4%
B) 7.0%
C) 14.3%
D) 250.0%
E) 2.8%

101) Cloverton Corporation had net income of $30,000, net sales of $1,000,000, and average total assets of $500,000. Its return on total assets is:

A) 3%
B) 200%
C) 6%
D) 17%
E) 1.5%

102) Canberry Corporation had net income of $128,000, beginning total assets of $928,000 and ending total assets of $820,000. Its return on total assets is:

A) 14.6%
B) 13.8%
C) 15.6%
D) 725%
E) 641%

103) Canberry Corporation had net income of $79,910, beginning total assets of $640,000 and ending total assets of $580,000. Its return on total assets is:

A) 13.1%
B) 12.5%
C) 13.8%
D) 800%
E) 725%

104) A company has net income of $275,000, net sales of $5,600,000, and average total assets of $2,942,500. Its return on total assets equals:

A) 52.5%.
B) 18.1%.
C) 4.9%.
D) 9.3%.
E) 1,070.0%.

105) A company has net income of $250,500, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

A) 12.5%.
B) 13.3%.
C) 16.7%.
D) 75.0%.
E) 600.0%.

106) A company had net income of $2,680,000, net sales of $25,600,000, and average total assets of $9,200,000. Its return on total assets equals:

A) 343.28%.
B) 35.94%.
C) 3.43%.
D) 29.13%.
E) 10.47%.

107) A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of $8,000,000. Its return on total assets equals:

A) 3.01%.
B) 10.64%.
C) 32.00%.
D) 33.25%.
E) 300.75%.

108) A company had net income of $48,000, net sales of $627,900, and average total assets of $230,000. Its profit margin and total asset turnover were, respectively:

A) 7.64%; 2.73.
B) 2.73%; 20.87.
C) 2.73%; 7.64.
D) 7.64%; 20.87.
E) 20.87%; 7.64.

109) A company had net income of $42,940, net sales of $380,000, and average total assets of $237,500. Its profit margin and total asset turnover were, respectively:

A) 11.3%; 1.6.
B) 11.3%; 19.5.
C) 1.7%; 19.5.
D) 1.7%; 11.3.
E) 19.5%; 11.3.

110) A company had a profit margin of 11.00% and total asset turnover of 1.77. Its return on total assets was:

A) 13.26%
B) 6.21%
C) 9.23%
D) 12.77%
E) 19.47%

111) A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total assets was:

A) 5.71%
B) 8.66%
C) 12.34%
D) 13.61%
E) 19.32%

112) A company had net income of $49,000, net sales of $465,000, and average total assets of $390,000. Its profit margin and total asset turnover were respectively:

A) 1.19%; 0.13.
B) 1.93%; 1.19.
C) 10.54%; 1.19.
D) 10.54%; 0.13.
E) 1.19%; 10.54.

113) A company had net income of $39,000, net sales of $300,000, and average total assets of $200,000. Its profit margin and total asset turnover were respectively:

A) 13.3%; 0.2.
B) 13.0%; 1.5.
C) 2.0%; 1.5.
D) 1.5%; 0.2.
E) 1.5%; 13.3.

114) Investments can be classified as all but which of the following:

A) Intangible investments.
B) Held-to-maturity debt securities.
C) Available-for-sale debt securities.
D) Stock investments with insignificant influence.
E) Trading debt securities.

115) Investments in debt securities that the company actively manages and trades for profit are referred to as short-term debt investments in:

A) Available-for-sale securities.
B) Held-to-maturity securities.
C) Trading securities.
D) Realizable securities.
E) Liquid securities.

116) Investments in trading securities:

A) Include only equity securities.
B) Are reported as current assets.
C) Include debt and equity securities.
D) Are reported at their cost, no matter what their fair value.
E) Are long-term investments.

117) A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n):

A) Contingent loss.
B) Realizable loss.
C) Unrealized loss.
D) Capitalized loss.
E) Market loss.

118) Held-to-maturity securities are:

A) Always classified as Short-Term Investments.
B) Always classified as Long-Term Investments.
C) Debt securities that a company intends and is able to hold to maturity.
D) Equity securities that a company intends and is able to hold to maturity.
E) Equity securities where significant influence involved.

119) Available-for-sale debt securities are:

A) Recorded at cost and remain at cost over the life of the investment.
B) Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
C) Reported at fair value on the balance sheet.
D) Intended to be held to maturity.
E) Always classified as Long-Term Investments.

120) Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of these debt securities follows.

The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:

A) Debit Unrealized Gain – Equity $1,600; Credit Fair Value Adjustment – Available-for-Sale (LT) $1,600.
B) Debit Unrealized Loss – Equity $1,600; Credit Fair Value Adjustment – Available-for-Sale (LT) $1,600.
C) Debit Realized Loss – Income $1,600; Credit Fair Value Adjustment – Available-for-Sale (ST) $1,600.
D) Debit Fair Value Adjustment – Available-for-Sale (LT) $1,600; Credit Unrealized Loss – Equity $1,600.
E) Debit Fair Value Adjustment – Available-for-Sale (LT) $1,600; Credit Unrealized Gain – Equity $1,600.

121) Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of these debt securities follows.

The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:

A) Debit Unrealized Gain – Equity $1,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $1,000.
B) Debit Unrealized Loss – Equity $1,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $1,000.
C) Debit Realized Loss – Income $1,000; Credit Fair Value Adjustment – Available-for-Sale (ST) $1,000.
D) Debit Fair Value Adjustment – Available-for-Sale (LT) $1,000; Credit Unrealized Loss – Equity $1,000.
E) Debit Fair Value Adjustment – Available-for-Sale (LT) $1,000; Credit Unrealized Gain – Equity $1,000.

122) Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of debt securities follows.

The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:

A) Debit Unrealized Gain – Equity $15,600; Credit Fair Value Adjustment – Available-for-Sale (LT) $15,600.
B) Debit Fair Value Adjustment – Available-for-Sale (LT) $11,800; Credit Unrealized Loss – Equity $3,800; Credit Unrealized Gain – Equity, $15,600.
C) Debit Fair Value Adjustment – Available-for-Sale (LT) $15,600; Credit Unrealized Gain – Equity, $15,600.
D) Debit Fair Value Adjustment – Available-for-Sale (LT) $15,600; Credit Unrealized Loss – Equity $15,600.
E) Debit Fair Value Adjustment – Available-for-Sale (LT) $11,800; Credit Unrealized Gain – Equity $11,800.

123) Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of debt securities follows.

The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:

A) Debit Unrealized Gain – Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $9,000.
B) Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Loss – Equity $1,000; Credit Unrealized Gain – Equity, $8,000.
C) Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Gain – Equity, $10,000.
D) Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Loss – Equity $10,000.
E) Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Gain – Equity $9,000.

124) Trading (debt) securities are:

A) Recorded at cost and then reported at cost over the life of the investment.
B) Reported at historical cost and then adjusted for the amortized amount of any difference between cost and maturity value.
C) Recorded at cost and then reported at fair value on the balance sheet.
D) Intended to be held to maturity.
E) Always classified as Long-Term Investments.

125) Which of the following pertaining to available-for-sale debt securities is false?

A) Recorded at cost when acquired.
B) Earn interest that is reported in the income statement.
C) Classified as either short-term or long-term securities.
D) Reported at fair value on the balance sheet.
E) Actively managed like Trading Securities.

126) J.P. Industries purchased Yang’s notes for $143,375 as a long-term investment. The investment is classified as available-for-sale. J.P.’s entry to record the purchase transaction would include a:

A) Credit to Short-Term Investments-AFS for $143,375.
B) Credit to Long-Term Investments-AFS for $143,375.
C) Credit to Notes Payable for $143,375.
D) Debit to Equity Investments-AFS for $143,375.
E) Debit to Debt Investments-AFS for $143,375.

127) Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 cash. Gonzalez has 500,000 shares of stock currently outstanding. Lessington’s entry to record the purchase would include a:

A) Debit to Stock Investments for $150,000.
B) Credit to Common Stock for $150,000.
C) Credit Equity Method Investment $150,000.
D) Debit to Debt Investments-HTM for $150,000.
E) Debit to Equity Method Investment for $150,000.

128) Six months ago, a company purchased stock investments with insignificant influence for $76,200. This is the company’s first and only purchase of stock. The current year-end fair value of the stock is $72,000. The company should record a:

A) Credit to Dividend Revenue for $4,200.
B) Credit to Investment Revenue for $4,200.
C) Debit to Unrealized Loss—Income for $4,200.
D) Debit to Investment Revenue for $4,200.
E) Debit to Unrealized Gain—Equity for $4,200.

129) Six months ago, a company purchased stock investments with insignificant influence for $70,000. This is the company’s first and only purchase of stock. The current year-end fair value of the stock is $68,500. The company should record a:

A) Debit to Unrealized Loss—Income for $1,500.
B) Credit to Unrealized Gain—Income for $1,500.
C) Debit to Investment Revenue for $1,500.
D) Credit to Dividend Revenue for $1,500.
E) Credit to Investment Revenue for $1,500.

130) On July 31, Potter Company purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000 shares currently outstanding. This is the company’s first and only stock investment. On October 31, which is Potter’s year-end, the stock had a fair value of $20,000. Potter should record a:

A) Credit to Unrealized Gain-Income for $4,000.
B) Credit to Fair Value Adjustment-Stock for $4,000.
C) Credit to Investment Revenue for $4,000.
D) Debit to Unrealized Loss-Income for $4,000.
E) Debit to Unrealized Gain-Equity for $4,000.

131) On March 15, Alan Company purchased 10% of Cameo Corporation’s stock for $35,000. This is the company’s first and only stock investment. On Alan’s June 30 year-end, the stock had a fair value of $34,000. Alan should do which of the following:

A) Record a debit to the Fair Value Adjustment-Stock account.
B) Record a debit to the Unrealized Loss—Income account.
C) Report a decrease in the Gain on Sale of Investment income statement account.
D) Report an increase in the asset section of the balance sheet.
E) Record a credit to the Unrealized Gain—Income account.

132) If a company owns between 20% and 50% 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.

133) MotorCity, Incorporated purchased 61,000 shares of Shaw common stock for $274,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

A) Debit to Debt Investments for $274,000.
B) Debit to Equity Method Investments for $274,000.
C) Credit to Equity Method Investments for $274,000.
D) Debit to Long-Term Investments-HTM for $274,000.
E) Debit to Short-Term Investment-AFS for $274,000.

134) MotorCity, Incorporated purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

A) Debit to Debt Investments for $232,000.
B) Debit to Equity Method Investments for $232,000.
C) Credit to Equity Method Investments for $232,000.
D) Debit to Long-Term Investments-HTM for $232,000.
E) Debit to Short-Term Investment-AFS for $232,000.

135) Segmental Manufacturing owns 35% of Glesson Corporation stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental’s entry to record the cash dividend received from Glesson would include a:

A) Credit to Equity Method Investments for $16,450.
B) Debit to Equity Method 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.

136) Zhang Corporation owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang’s entry to record the cash dividend received from Magnor would include a:

A) Debit to Dividends for $97,000.
B) Debit to Dividends for $38,800.
C) Debit to Equity Method Investments for $97,000.
D) Credit to Equity Method Investments for $38,800.
E) Credit to Cash for $97,000.

137) McVeigh Corporation owns 40% of Gondor Company's common stock. McVeigh received $54,400 in cash dividends from Gondor. The entry to record the cash dividend received from Gondor would include a:

A) Debit to Dividends for $136,000.
B) Credit to Equity Method Investments for $54,400.
C) Debit to Dividend Revenue for $54,400.
D) Credit to Equity Method Investments for $136,000.
E) Credit to Cash for $54,400.

138) McVeigh Corporation owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record the cash dividend received from Gondor would include a:

A) Debit to Dividends for $103,000.
B) Credit to Equity Method Investments for $41,200.
C) Debit to Dividend Revenue for $41,200.
D) Credit to Equity Method Investments for $103,000.
E) Credit to Cash for $41,200.

139) Marjam Company owns 51,600 shares of MacKenzie Company's 120,000 outstanding shares of common stock. MacKenzie Company pays $120,000 in total cash dividends to its shareholders. Marjam's entry to record the cash dividend received from MacKenzie would include a:

A) Debit to Interest Revenue for $14,190.
B) Credit to Equity Method Investments for $33,000.
C) Debit to Dividend Revenue for $14,190.
D) Credit to Equity Method Investments for $51,600.
E) Credit to Dividend Revenue for $33,000.

140) Marjam Company owns 41,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam’s entry to record the cash dividend received from MacKenzie would include a:

A) Debit to Dividend Revenue for $10,250.
B) Debit to Interest Revenue for $10,250.
C) Credit to Equity Method Investments for $10,250.
D) Credit to Equity Method Investments for $25,000.
E) Credit to Dividend Revenue for $25,000.

141) Bharrat Corporation purchased 47% of Ferris Corporation for $107,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $19,000. At year-end, Ferris Corporation reported net income of $67,000. The balance in the Bharrat's Equity Method Investments—Ferris account at December 31 should be:

A) $98,070.
B) $107,000.
C) $138,490.
D) $84,440.
E) $129,560.

142) Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat's Equity Method Investments—Ferris account at December 31 should be:

A) $80,800.
B) $100,000.
C) $95,200.
D) $119,200.
E) $124,000.

143) Madison Corporation purchased 40% of Jay Corporation for $400,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $100,000. At year-end, Jay Corporation reported net income of $500,000. The balance in Madison's Equity Method Investments—Jay Corporation account as of December 31 should be:

A) $740,000.
B) $640,000.
C) $560,000.
D) $400,000.
E) $240,000.

144) Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison's Equity Method Investments—Jay Corporation account as of December 31 should be:

A) $77,000.
B) $125,000.
C) $173,000.
D) $197,000.
E) $370,000.

145) Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:

A) Debit Cash, $9,000; credit Equity Method Investments, $9,000.
B) Debt Equity Method Investment, $9,000; credit Cash, $9000.
C) Debit Cash, $9,000; credit Interest Revenue, $9,000.
D) Debit Unrealized Gain-Income, $9,000; credit Cash, $9,000.
E) Debit Cash, $9,000; credit Dividend Revenue, $9,000.

146) On January 4, Year 1, Barber Company purchased 14,000 shares of Convell Company for $172,600 . Convell Company has a total of 70,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $126,000 and $121,000 for Year 1 and Year 2, respectively.
The January 2, Year 3, entry to record Barber's sale of 8,400 shares of Convell Company stock, which represents 60% of Barber's total investment, for $113,400 cash, should be:

A) Debit Cash $113,400; debit Loss on Sale of Stock Investment $9,840; credit Equity Method Investments $103,560.
B) Debit Cash $113,400; debit Loss on Sale of Investment $5,520; credit Equity Method Investments $118,920.
C) Debit Cash $113,400; credit Gain on Sale of Stock Investment $23,800; credit Equity Method Investments $89,600.
D) Debit Cash $113,400; credit Gain on Sale of Stock Investment $23,800; credit Equity Method Investments $137,200.
E) Debit Cash $113,400; debit Loss on Sale of Stock Investment $59,200; credit Equity Method Investments $172,600.

147) On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $60,500. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively.
The January 2, Year 3, entry to record Barber’s sale of 3,000 shares of Convell Company stock, which represents 60% of Barber’s total investment, for $39,000 cash, should be:

A) Debit Cash $39,000; debit Loss on Sale of Stock Investment $8,200; credit Equity Method Investments $47,280.
B) Debit Cash $39,000; debit Loss on Sale of Stock Investment $8,880; credit Equity Method Investments $47,880.
C) Debit Cash $39,000; credit Gain on Sale of Stock Investment $2,700; credit Equity Method Investments $36,300.
D) Debit Cash $39,000; credit Gain on Sale of Stock Investment $8,750; credit Equity Method Investments $30,250.
E) Debit Cash $39,000; debit Loss on Sale of Stock Investment $21,500; credit Equity Method Investments $60,500.

148) On January 2, Year 1, Barber Company purchased 6,400 shares of Convell Company for $74,780. Convell Company has a total of 32,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $86,000 and $81,000 for Year 1 and Year 2, respectively. What is the book value of Barber's investment in Convell at the end of Year 2?

A) $74,780.
B) $97,300.
C) $63,900.
D) $108,180.
E) $107,180.

149) On January 2, Year 1, Barber Company purchased 5,000 shares of Convell Company for $60,500. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. What is the book value of Barber’s investment in Convell at the end of Year 2?

A) $60,500.
B) $79,800.
C) $52,000.
D) $88,300.
E) $87,300.

150) Bledsoe Incorporated purchases debt investments as trading securities at a cost of $175,000 on October 27. This is the first and only purchase of such securities. At December 31, these securities had a fair value of $181,000. The journal entry to record the purchase of these debt securities would include a:

A) Debit to Cash for $175,000.
B) Credit to Cash for $181,000.
C) Debit to Debt Investments – Trading for $175,000.
D) Debit to Debt Investments – Trading for $181,000.
E) Credit to Equity Method Investments for $175,000.

151) Brogdon Company purchases debt investments as trading securities at a cost of $100,000 on June 15. This is the first and only purchase of such securities. At December 31 these securities had a fair value of $102,000. The December 31 year-end fair value adjusting entry for the trading securities’ portfolio includes a:

A) Debit to Unrealized Gain – Income for $2,000.
B) Debit to Unrealized Gain – Income for $102,000.
C) Credit to Fair Value Adjustment – Trading for $2,000.
D) Debit to Cash for $102,000.
E) Credit to Unrealized Gain – Income for $2,000.

152) Giannis Corporation purchases debt investments as trading securities at a cost of $150,000 on December 1. This is its first and only purchase of such securities. On January 5, Giannis Corporation decides to sell a portion of its trading securities (costing $9,000) for $10,000 cash. The journal entry to record this sale would include a:

A) Debit to Cash for $9,000.
B) Credit to Debt Investments – Trading for $10,000.
C) Debit to Debt Investments – Trading for $9,000.
D) Credit to Cash for $10,000.
E) Credit to Gain on Sale of Debt Investments for $1,000.

153) Which of the following statements regarding the equity method is false?

A) The equity method is used for long-term investments in equity securities with significant influence.
B) Using the equity method, long-term investments with significant influence are recorded at cost when acquired.
C) Under the equity method, dividends received by an investor from an investee are recorded with a credit to the Dividend Revenue account.
D) The Earnings from Equity Method Investments account is a temporary account that is closed to the Income Summary account at each period-end.
E) Earnings from Equity Method Investments is reported on the investor’s income statement.

154) Which of the following statements regarding the consolidation method is false?

A) The consolidation method is used for long-term investments in equity securities with controlling influence.
B) Under the consolidation method, investors report equity securities with controlling influence using consolidated financial statements.
C) The individual assets and liabilities of the parent and its subsidiaries are combined on one balance sheet.
D) The revenues and expenses of the parent and its subsidiaries are combined on one income statement.
E) When a company operates as a parent with subsidiaries, all entities combine their accounting records, but report separate statements of cash flows.

155) Which of the following statements regarding accounting for equity investments with controlling influence is false?

A) These investments are accounted for using fair values with unrealized gains and losses reported in other comprehensive income.
B) The parent uses the consolidation method.
C) The controlling investor is called the parent.
D) Consolidated financial statements show the financial statements of all entities under the parent’s control, including all subsidiaries.
E) An investor who owns more than 50% of a company’s voting stock has control over the investee.

156) Which of the following statements regarding accounting for stock investments with insignificant influence is false?

A) When an investor owns less than 20% of voting stock, the investor is presumed to have insignificant influence.
B) Stock investments with insignificant influence are reported at fair value.
C) The investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.
D) Stock investments with insignificant influence are classified as either short or long term based on managers’ intent and the stock’s marketability.
E) Any unrealized gain (or loss) from a change in the fair value of the portfolio of stock investments is reported on the income statement.

157) Which of the following statements regarding accounting for trading debt securities is false?

A) The portfolio of trading securities is reported at fair value.
B) An unrealized gain or loss from a change in fair value is reported in the income statement.
C) An unrealized gain or loss is recorded with an adjusting entry when the securities are sold.
D) An unrealized gain or loss is recorded with an adjusting entry at the end of each period.
E) Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of each period.

158) Which of the following statements regarding equity securities with significant influence is false?

A) An investor who owns between 20% and 50% of a company’s voting stock usually has significant influence.
B) The equity method is used for long-term investments in equity securities with significant influence.
C) Long-term investments in equity securities with significant influence are recorded at cost when acquired.
D) Cash dividends earned by an investor with significant influence are recorded with a debit to Cash and a credit to Dividend Revenue.
E) When the investee reports its earnings, the investor records its share of those earnings in its investment account.

159) Which of the following statements regarding other comprehensive income is false?

A) Other comprehensive income includes unrealized gains and losses on available-for-sale securities.
B) Other comprehensive income is not considered when calculating comprehensive income.
C) Other comprehensive income includes foreign currency adjustments.
D) Other comprehensive income is added or subtracted to net income to determine comprehensive income.
E) Accumulated other comprehensive income is the cumulative impact for all periods of other comprehensive income.

160) Landmark Corporation buys $300,000 of Schroeter Company’s 8%, 5-year bonds, at par value on September 1. Interest payments are made semiannually. Which of the following statements regarding accounting for these securities is false?

A) The debt securities should be recorded at cost, $300,000.
B) The securities will have a maturity value of $300,000.
C) The semiannual interest payment amount is $12,000.
D) The semiannual interest payment amount is $24,000.
E) Interest Revenue should be credited when interest is earned.

161) Landmark Corporation buys $520,000 of Schroeter Company's 6%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:

A) A debit to Debt Investments—AFS $520,000.
B) A debit to Debt Investments—Trading $520,000.
C) A debit to Debt Investments—HTM $520,000.
D) A debit to Stock Investments $520,000.
E) A debit to Cash $520,000.

162) Landmark Corporation buys $300,000 of Schroeter Company’s 8%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:

A) A debit to Debt Investments—AFS $300,000.
B) A debit to Debt Investments—Trading $300,000.
C) A debit to Debt Investments—HTM $300,000.
D) A debit to Stock Investments $300,000.
E) A debit to Cash $300,000.

163) Landmark buys $380,000 of SRW Company’s 9%, 5-year bonds payable, at par value on July 1. Interest payments are made semiannually on December 31 and June 30. The journal entry Landmark should make to record interest earned and received on December 31 is:

A) Debit Cash $17,100, credit Interest Revenue $17,100.
B) Debit Cash $34,200, credit Interest Revenue $34,200.
C) Debit Cash $11,400, credit Interest Revenue $11,400.
D) Debit Interest Receivable $17,100, credit Interest Revenue $17,100.
E) Debit Interest Revenue $17,100, credit Cash $17,100.

164) Landmark buys $300,000 of SRW Company’s 8%, 5-year bonds payable, at par value on July 1. Interest payments are made semiannually on December 31 and June 30. The journal entry Landmark should make to record interest earned and received on December 31 is:

A) Debit Cash $12,000, credit Interest Revenue $12,000.
B) Debit Cash $24,000, credit Interest Revenue $24,000.
C) Debit Cash $8,000, credit Interest Revenue $8,000.
D) Debit Interest Receivable $12,000, credit Interest Revenue $12,000.
E) Debit Interest Revenue $12,000, credit Cash $12,000.

165) Landmark Corporation buys $330,000 of Schroeter Company's 7%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

A) Debit Long-Term Investments—HTM $330,000; credit Cash $330,000.
B) Debit Cash $330,000; credit Interest Revenue $330,000.
C) Debit Cash $330,000; credit Debt Investments—HTM $330,000.
D) Debit Cash $330,000; credit Interest Receivable $330,000.
E) Debit Cash $330,000; credit Bonds Payable $330,000.

166) Landmark Corporation buys $300,000 of Schroeter Company’s 8%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

A) Debit Long-Term Investments—HTM $300,000; credit Cash $300,000.
B) Debit Cash $300,000; credit Interest Revenue $300,000.
C) Debit Cash $300,000; credit Debt Investments—HTM $300,000.
D) Debit Cash $300,000; credit Interest Receivable $300,000.
E) Debit Cash $300,000; credit Bonds Payable $300,000.

167) On February 15, Jewel Company buys notes of Marcelo Corporation for $200,710. The investment is classified as long-term available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. The journal entry to record the purchase on February 15 is:

A) Debit Debt Investments—HTM $200,710; credit Cash $200,710.
B) Debit Debt Investments—AFS $200,710; credit Notes Payable $200,710.
C) Debit Debt Investments—Trading $200,710; credit Cash $200,710.
D) Debit Debt Investments—Trading $200,710; credit Notes Payable $200,710.
E) Debit Long-Term Investments—AFS $200,710; credit Cash $200,710.

168) On February 15, Jewel Company buys notes of Marcelo Corporation for $200,110. The investment is classified as long-term available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. The journal entry to record the purchase on February 15 is:

A) Debit Debt Investments—HTM $200,100; credit Cash $200,100.
B) Debit Debt Investments—AFS $200,110; credit Notes Payable $200,100.
C) Debit Debt Investments—Trading $200,100; credit Cash $200,100.
D) Debit Debt Investments—Trading $200,110; credit Notes Payable $200,110.
E) Debit Long-Term Investments—AFS $200,110; credit Cash $200,110.

169) On February 15, Jewel Company buys bonds of Marcelo Corporation for $201,900. The investment is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On December 31, the bonds had a fair value of $204,100. The entry to record the year-end adjustment is:

A) Debit Cash $2,200; credit Dividend Revenue $2,200.
B) Debit Fair Value Adjustment—Available-for-Sale $2,200; credit Unrealized Gain—Equity $2,200.
C) Debit Fair Value Adjustment—Available-for-Sale $2,200; credit Interest Revenue $2,200.
D) Debit Fair Value Adjustment—Available-for-Sale $2,200; credit Realized Gain—Income $2,200.
E) Debit Cash $2,200; credit Gain on Sale of Investments $2,200.

170) On February 15, Jewel Company buys bonds of Marcelo Corporation for $200,000. The investment is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On December 31, the bonds had a fair value of $200,300. The entry to record the year-end adjustment is:

A) Debit Cash $300; credit Dividend Revenue $300.
B) Debit Fair Value Adjustment—Available-for-Sale $300; credit Unrealized Gain—Equity $300.
C) Debit Fair Value Adjustment—Available-for-Sale $300; credit Interest Revenue $300.
D) Debit Fair Value Adjustment—Available-for-Sale $300; credit Realized Gain—Income $300.
E) Debit Cash $300; credit Gain on Sale of Investments $300.

171) On February 15, Jewel Company buys bonds of Marcelo Corporation for $202,110 cash. This debt investment is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. Jewel Company sells 40% of the Marcelo Corporation debt investment on November 17 of the current year for $106,200 cash. The entry to record this sale includes a:

A) Debit to Cash for $80,844.
B) Credit to Debt Investments—AFS for $80,844.
C) Debit to Loss on Sale of Debt Investments for $25,356.
D) Debit to Debt Investments—AFS for $80,844.
E) Credit to Loss on Sale of Debt Investments for $25,356.

172) On February 15, Jewel Company buys bonds of Marcelo Corporation for $200,110 cash. This debt investment is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. Jewel Company sells 40% of the Marcelo Corporation debt investment on November 17 of the current year for $102,200 cash. The entry to record this sale includes a:

A) Debit to Cash for $80,044.
B) Credit to Debt Investments—AFS for $80,044.
C) Debit to Loss on Sale of Debt Investments for $22,156.
D) Debit to Debt Investments—AFS for $80,044.
E) Credit to Loss on Sale of Debt Investments for $22,156.

173) On February 15, Jewel Company buys 11,400 shares of Marcelo Corporation common stock at $30.73 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $2.25 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $31.50 per share. The journal entry to record the sale of the 5,700 shares of stock on November 17 is:

A) Debit Cash $175,161; debit Loss on Sale of Stock Investments $4,389; credit Stock Investments $179,550.
B) Debit Cash $179,550; credit Long-Term Investments—Trading $175,161; debit Gain on Sale of Long-Term Investments $4,389.
C) Debit Cash $179,550; credit Long-Term Investments—AFS $175,161; credit Gain on Sale of Long-Term Investments $4,389.
D) Debit Cash $179,550; credit Stock Investments $175,161; credit Gain on Sale of Stock Investments $4,389.
E) Debit Cash $179,550; credit Long-Term Investments—Trading $175,161; credit Gain on Sale of Long-Term Investments $4,389.

174) On February 15, Jewel Company buys 7,000 shares of Marcelo Corporation common stock at $28.53 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.30 per share. The journal entry to record the sale of the 3,500 shares of stock on November 17 is:

A) Debit Cash $102,550; debit Loss on Sale of Stock Investments $2,445; credit Stock Investments $104,99.
B) Debit Cash $102,550; credit Long-Term Investments—Trading $99,855; debit Gain on Sale of Long-Term Investments $2,695.
C) Debit Cash $102,550; credit Long-Term Investments—AFS $100,055; credit Gain on Sale of Long-Term Investments $2,495.
D) Debit Cash $102,550; credit Stock Investments $99,855; credit Gain on Sale of Stock Investments $2,695.
E) Debit Cash $102,550; credit Long-Term Investments—Trading $99,855; credit Gain on Sale of Long-Term Investments $2,695.

175) On February 15, Jewel Company buys 6,600 shares of Marcelo Corporation at $28.67 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.19 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.45 per share. The fair value of the remaining shares is $29.65 per share. The impact on Jewel’s net income as a result of its investment in Marcelo Corporation was a(n):

A) Increase to income of $13,662.
B) Increase to income of $10,428.
C) Increase to income of $7,854.
D) Decrease to income of $7,854.
E) Decrease to income of $5,280.

176) On February 15, Jewel Company buys 7,000 shares of Marcelo Corporation at $28.53 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15. Jewel Company sells half of the Marcelo Corporation stock on November 17 of the current year for $29.30 per share. The fair value of the remaining shares its December 31 year-end is $29.50 per share. The impact on Jewel’s December 31 year-end net income as a result of its investment in Marcelo Corporation was a(n):

A) Increase to income of $14,140.
B) Increase to income of $8,050.
C) Increase to income of $10,745.
D) Decrease to income of $8,050.
E) Decrease to income of $5,440.

177) On February 15, Jewel Company buys 6,000 shares of Marcelo Corporation at $28.73 per share. The purchase is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.25 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 30 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.51 per share. The fair value of the remaining shares is $29.71 per share at year-end. The amount that Jewel Company should report in the current-year income statement from its investment in Marcelo Corporation is:

A) Unrealized Gain—Income; $8,840.
B) Realized Gain—Income; $2,940.
C) Unrealized Loss—Equity; $2,940.
D) Unrealized Gain—Income; $2,940.
E) Unrealized Loss—Income; $2,940.

178) On February 15, Jewel Company buys 7,000 shares of Marcelo Corporation at $28.53 per share. The purchase is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 30 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.30 per share. The fair value of the remaining shares is $29.50 per share at year-end. The amount that Jewel Company should report in the current-year income statement from its investment in Marcelo Corporation is:

A) Unrealized Gain—Income; $10,295.
B) Realized Gain—Income; $3,395.
C) Unrealized Loss—Equity; $3,395.
D) Unrealized Gain—Income; $3,395.
E) Unrealized Loss—Income; $3,395.

179) On February 15, Jewel Company buys 6,300 shares of Marcelo Corporation at $28.70 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.22 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.47 per share. The fair value of the remaining 3,150 shares is $29.67 per share. The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corporation is:

A) $5,613.
B) $2,816.
C) $181,290.
D) $1,850.
E) $93,460.

180) On February 15, Jewel Company buys 7,000 shares of Marcelo Corporation at $28.53 per share. The stock is classified as a stock investment with insignificant influence. This is the company’s first and only stock investment. On March 15, Marcelo Corporation declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corporation stock on November 17 of the current year for $29.30 per share. The fair value of the remaining 3,500 shares is $29.50 per share. The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corporation is:

A) $200,110.
B) $103,250.
C) $2,245.
D) $3,195.
E) $5,440.

181) Financial statements that show the financial statements of all entities under the parent’s control, including all subsidiaries are called:

A) Comprehensive financial statements
B) Consolidated financial statements
C) Equity financial statements
D) Statement of owner’s equity
E) Investor financial statements

182) The two business entities involved in an investment in securities with controlling influence, for which consolidated financial statements are prepared, are known as:

A) Parent and Investor
B) Subsidiary and Investee
C) Consolidator and Parent
D) Parent and Subsidiary
E) Both are referred to as partners.

Answer Key

Test name: Appendix C Test Bank - Algorithmic and Static

1) FALSE

2) FALSE

3) TRUE

4) FALSE

5) TRUE

6) TRUE

7) TRUE

8) TRUE

9) TRUE

10) FALSE

11) TRUE

12) TRUE

13) TRUE

14) FALSE

15) TRUE

16) FALSE

17) TRUE

18) FALSE

19) FALSE

20) TRUE

21) TRUE

22) FALSE

23) FALSE

24) FALSE

25) FALSE

26) TRUE

27) TRUE

28) TRUE

29) FALSE

30) TRUE

31) FALSE

32) TRUE

33) FALSE

34) TRUE

35) FALSE

36) TRUE

37) TRUE

38) FALSE

39) FALSE

40) TRUE

41) FALSE

42) TRUE

43) TRUE

44) TRUE

45) TRUE

46) TRUE

47) FALSE

48) TRUE

49) FALSE

50) TRUE

51) FALSE

52) TRUE

53) FALSE

54) FALSE

55) TRUE

56) FALSE

57) TRUE

58) TRUE

59) TRUE

60) TRUE

61) FALSE

62) B

63) A

64) C

65) A

66) C

67) C

68) E

69) C

70) E

71) D

72) C

73) C

74) E

75) A

76) E

77) C

78) A

79) C

80) A

81) E

82) C

83) B

84) C

85) B

86) E

87) B

88) A

89) B

90) D

91) D

92) A

93) C

94) E

95) D

96) D

97) B

98) D

99) D

100) B

101) C

102) A

103) A

104) D

105) C

106) D

107) D

108) A

109) A

110) E

111) E

112) C

113) B

114) A

115) C

116) B

117) C

118) C

119) C

120) B

121) E

122) E

123) E

124) C

125) E

126) E

127) A

128) C

129) A

130) A

131) B

132) A

133) B

134) B

135) A

136) D

137) B

138) B

139) D

140) C

141) E

142) D

143) C

144) C

145) A

146) B

147) B

148) B

149) B

150) C

151) E

152) E

153) C

154) E

155) A

156) C

157) C

158) D

159) B

160) D

161) C

162) C

163) A

164) A

165) C

166) C

167) E

168) E

169) B

170) B

171) B

172) B

173) D

174) D

175) A

176) A

177) D

178) D

179) E

180) B

181) B

182) D