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Finance Ch 13 Quiz: Investment and Securities Accounting 2015

A quiz covering key concepts in investment and securities accounting, including valuation methods, market impact, and financial reporting standards.

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    Finance Ch 13 Quiz Multiple Choice 2015 1. Investments in debt and equity securities that are held for current resale by banks and stockbrokerage firms a. are termed b. available - for - sale securities c. trading securities d. held - to - maturity securities marketable securities 2. Which of the following categories of investments are reported at their fair values on the balance sheet and have unrealized holding gains and losses included as a separate component of stockholders' equity? a. held - to - maturity debt securities b. marketable securities c. available - for - sale securities d. trading securities 3. Which of the following securities are reported at their amortized cost on the balance sheet date? a. held - to - maturity debt securities b. marketable securities c. available - for - sale securities d. trading securities 4. With consolidation, control generally occurs when the investor owns what percentage of the voting stock of the investee? a. over 50% b. between 20% and 50% c. less than 20% d. over 40% 5. Which of the following methods of accounting for investments is appropriate when the investor has significant influence over the investee? a. equity method b. consolidation c. cost method d. lower of cost or market method 6. How is the premium or discount on held - to - maturity bond investments presented on the balance sheet?

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    a. as a part of the cost of the investment and amortized over a period not to exceed five years b. as a part of the cost of the investment and amortized over the remaining life of the bonds c. in a separate account that is reported separately from the bonds and amortized over a period not to exceed five years d. in a separate account that is reported separately from the investment account and not amortized 7. On January 1, 2014, Macie Company purchased Jefferson Company's 9% bonds with a face amount of $200,000 for $213,420 to yield 8%. The bonds mature on January 1, 2024, and Macie has both the intent and ability to hold these bonds to maturity. The bonds pay interest annually on December 31. Assuming Macie uses the effective interest method of amortizing the bond premium; interest income reported on the December 31, 2014, balance sheet would be a. $16,000 b. $17,074 c. $18,000 d. $18,926 8. On October 1, 2014, the Sun Company acquired 9% bonds of Jack’s Company with a face value of $400,000 for $412,000 plus accrued interest. Interest is payable on June 30 and December 31. How would Sun record the initial bond investment to be held - to - maturity? a. Investment in Held - to - Maturity Debt Securities 412,000 Interest Income 9,360 Cash 421,360 b. Investment in Held - to - Maturity Debt Securities 412,000 Interest Income 9,000 Cash 421,000 c. Investment in Held - to - Maturity Debt Securities 421,000 Cash 421,000 d. Investment in Held - to - Maturity Debt Securities 412,000 Cash 412,000 9. On July 1, 2015, Jason Company purchased $60,000 of ten - year 6% bonds of Santo, Inc., for $51,850, to be held - to - maturity. Interest is payable semiannually on June 30 and December 31. The effective yield on the investment is 8%. What amount of interest income should Jason record for the six - month period ended December 31, 2015? a. $2,063.04 b. $2,084.96 c. $2,074.00 d. $2,400.00

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    10.On January 1, 2014, Old World Company purchased $300,000 of ten - year 10% bonds of New Company for $326,840. Interest is payable annually. The effective yield on the investment is 8%. What is the balance in Old World’s investment in held - to - maturity debt securities account (rounded to the nearest dollar, if necessary) at December 31, 2015? a. $330,693 b. $326,840 c. $322,987 d. $318,826 11.On July 1, 2014, James Company purchased Timothy Company's six - year 9% bonds with a face value of $200,000 for $196,000, which included $6,000 of accrued interest. The bonds, which mature on March 1, 2020, are to be held - to - maturity and pay interest semiannually on March 1 and September 1. James uses the straight - line method of amortization. The amount of income James should report for the calendar year 2014 as a result of this investment would be a. $8,823.52 b. $9,882.36 c. $9,529.40 d. $8,117.64 12. The carrying value of held - to - maturity debt securities is the a. original purchase amount b. amortized cost c. market value d. lower of amortized cost or market value 13. Unrealized holding gains and losses occur because a company a. actively trades securities b. holds securities until maturity c. holds securities through the end of the reporting period d. records a change in fair value of the securities held even if they are not sold 14. Which of the following regarding trading securities is correct? a. Trading securities are reported at cost on the balance sheet date, and unrealized holding gains and losses are included in income of the current period. b. Trading securities are reported at fair value on the balance sheet date, and unrealized holding gains and losses are included in income of the current period. c. Trading securities are reported at fair value on the balance sheet date, but unrealized holding gains and losses are not included in income of the current period. d. Trading securities are reported at cost on the balance sheet date, but unrealized holding gains and losses are not included in income of the current period.

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