Unformatted text preview: Chapter 14 Quiz 1. Which securities are purchased with the intent of selling them in the near future? a. Marketable equity securities b. Available‐for‐sale securities c. Trading securities d. Held‐to‐maturity securities 2. Changes in fair value of securities are reported in the stockholders' equity section of the balance sheet for which type of securities? a. Marketable equity securities b. Available‐for‐sale securities c. Trading securities d. Held‐to‐maturity securities 3. A debit balance in the account Market Adjustment‐‐Available‐for‐Sale Securities at the end of a year should be interpreted as the net a. unrealized holding gain for that year. b. realized holding gain for that year. c. unrealized holding gain to date. d. realized holding gain to date. 4. When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes a. a proportionate share of the net income of the investee. b. a cash dividend received from the investee. c. periodic amortization of an intangible arising from contractual rights acquired in the purchase. d. depreciation related to the excess of market value over book value of the investee's depreciable assets at the date of purchase by the investor. 5. If the combined market value of available‐for‐sale securities at the end of the year is less than the market value of the same portfolio of available‐for‐sale securities at the beginning of the year, the difference should be accounted for by a. reporting an unrealized loss in security investments in the stockholders' equity section of the balance sheet. b. reporting an unrealized loss in security investments in the income statement. c. a footnote to the financial statements. d. a credit to Investment in Available‐for‐Sale Securities. 6. In March of 2010, Moon Corp. bought 45,000 shares of McMahon Corp.'s listed stock for $450,000 and classified the shares as available‐for‐sale securities. The market value of these shares had declined to $300,000 by December 31, 2010. Moon changed the classification of these shares to trading securities in June of 2011 when the market value of this investment in McMahon's stock had risen to $345,000. How much should Moon include as a loss on transfer of securities in its determination of net income for 2011? a. $0 b. $45,000 c. $105,000 d. $150,000 7. In January 2011, Henry Corporation acquired 20 percent of the outstanding common stock of Davis Company for $1,120,000. This investment gave Henry the ability to exercise significant influence over Davis. The book value of the acquired shares was $840,000. The excess of cost over book value was attributed to an identifiable intangible asset that was undervalued on Davis's balance sheet and that had a remaining useful life of ten years. For the year ended December 31, 2011, Davis reported net income of $252,000 and paid cash dividends of $56,000 on its common stock. What is the proper carrying value of Henry's investment in Davis at December 31, 2011? a. $1,080,800 b. $1,092,000 c. $1,131,200 d. $1,181,600 8. On April 1, 2011, Ziba Inc. purchased as a temporary investment $100,000, face amount, 10% U.S. Treasury notes; they pay interest semiannually on January 1 and July 1. The notes were purchased at 102. Which of the following entries correctly records this purchase? a. Trading Securities--10% U.S. Treasury Notes. 100,000
Interest Receivable......................... 2,500 Premium on Trading Securities............... 2,000 Cash..................................... b. Trading Securities--10% U.S. Treasury Notes. 102,000 Interest Receivable......................... 2,500 Cash..................................... c. Trading Securities--10% U.S. Treasury Notes. 100,000 Interest Receivable......................... 4,500 Cash..................................... d. Trading Securities--10% U.S. Treasury Notes. 102,000 Cash..................................... 104,500 104,500 104,500 102,000 9. Edwards Company began business in February 2010. During the year, Edwards purchased the three trading securities listed below. On its December 31, 2010, balance sheet, Edwards appropriately reported a $4,000 debit balance in its Market Adjustment‐‐Trading Securities account. There was no change in 2011 in the composition of Edward's portfolio of marketable equity securities held as a temporary investment. Pertinent data are as follows: Market Value Cost December 31, 2011 Security A B C $120,000 90,000 160,000 $370,000 $126,000 80,000 157,000 $363,000 What amount should Edwards credit to the Market Adjustment‐‐Trading Securities account at December 31, 2011? a. $0 b. $3,000 c. $7,000 d. $11,000 10. On October 1, Dennis Company purchased $200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and classified them as held‐to‐maturity securities. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were $700. At what amount should this acquisition of bonds be recorded? a. $196,000 b. $196,700 c. $202,000 d. $202,700 Answer Key: 1. C 2. B 3. C 4. A 5. A 6. C 7. C 8. B 9. D 10. B ...
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This note was uploaded on 04/06/2011 for the course ACCT 4050 taught by Professor Rodney during the Spring '11 term at UGA.
- Spring '11