Accounting Financial Statements Multiple Choice Question Homework Help
- November 9, 2017
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- Category: Accounting QA
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1.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:
a.$856,000
b.$744,000
c.$824,000
d.$800,000
2.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
a.debit to Stock Investments for $9,000.
b.credit to Dividend Revenue for $9,000.
c.credit to Stock Investments for $9,000.
d.debit to Dividend Revenue for $9,000.
3.Under the equity method, the Stock Investments account is increased when the
a. stock investment is sold at a gain.
b. investee company pays a dividend.
c. investee company reports net income.
d. investee company reports a loss.
4. 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.
b.credit to Unrealized Gain Income for $1,000.
c.debit to Unrealized Loss Income for $5,000.
d.debit to Loss on Sale of Stock Investments for $5,000.
5.A company that owns more than 50% of the common stock of another company is known as the
a.parent company.
b.subsidiary company.
c.management company.
d.charge company.
6.A typical investment to house excess cash until needed is
a.stocks of companies in a related industry.
b.debt securities.
c.low-risk, highly liquid securities.
d.stock securities.
7.Securities bought and held primarily for sale in the near term to generate income on short-term price differences are
a.non-trading securities.
b.trading securities.
c.never-sell securities.
d.held-for-collection securities.
8.Revenue is recognized when cash dividends are received under
a.the controlling interest method.
b.both the cost and equity methods.
c.the cost method.
d.the equity method.
9. Which one of the following would not be classified as a short-term investment?
a.Short-term paper
b.Marketable stock securities
c.Equity method investments
d.Marketable debt securities
10. If a company acquires a 40% common stock interest in another company,the ability to exert significant influence over the activities of the a.investee does not exist.
b.all influence is classified as controlling.
c.the cost method is usually applicable.
d.the equity method is usually applicable.
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11. 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
a.an addition to an asset of $6,000 and an unrealized gain of $6,000 in the stockholders’ equity section.
b.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.
c.an addition to an asset of $6,000 and a realized gain of $6,000.
d.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.
12. The balance in the Unrealized Loss Equity account will
a.appear on the balance sheet as a contra asset.
b.appear as a deduction in the stockholders’ equity section.
c.appear on the income statement under Other Expenses and Losses.
d.not be shown on the financial statements until the securities are sold
13. 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
a.$52,500.
b.$25,000.
c.$67,500.
d.$60,000.
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