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Unformatted text preview: CHAPTER 17 INVESTMENTS TRUE-FALSE —Conceptual 1. Debt securities include corporate bonds and convertible debt, but not U.S. government securities. False 2. Trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences. TRUE 3. Unrealized holding gains and losses are recognized in net income for available- for-sale debt securities. FALSE 4. A company can classify a debt security as held-to-maturity if it has the positive intent to hold the securities to maturity. F 5. Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold. T 6. The Securities Fair Value Adjustment account has a normal credit balance. F 7. Companies report trading securities at fair value, with unrealized holding gains and losses reported in net income. T 8. Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee. F 9. The Unrealized Holding Gain/Loss—Equity account is reported as a part of other compre-hensive income. T 10. Significant influence over an investee may be indicated by material intercompany trans-actions and interchange of managerial personnel. T 11. The accounting profession has concluded that an investment of more than 50 percent of the voting stock of an investee should lead to a presumption of significant influence over an investee. F 12. All dividends received by an investor from the investee decrease the investment’s carrying value under the equity method. T 13. Under the fair value method, the investor reports as revenue its share of the net income reported by the investee. F Test Bank for Intermediate Accounting, Thirteenth Edition 14. A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation. T 15. Companies may not use the fair value option for investments that follow the equity method of accounting. F 16. Changes in the fair value of a company's debt instruments are included as part of earnings in any given period. T 17. If a decline in a security’s value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis. F 18. A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income. T 19. If a company transfers held-to-maturity securities to available-for-sale securities, the unrealized gain or loss is recognized in income. F 20. The transfer of securities from trading to available-for-sale and from available-for- sale to trading has the same impact on stockholders’ equity and net income. T True-False Answers—Conceptual Item Ans. Item Ans. Item Ans. Item Ans....
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This note was uploaded on 01/20/2012 for the course ACCOUNTING 101 taught by Professor Dubai during the Spring '11 term at Abu Dhabi University.
- Spring '11
- The Land