Finance Ch 13 Quiz: Investment and Securities Accounting 2015

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Finance Ch 13 Quiz Multiple Choice 20151.Investments in debt and equity securities that are held for current resale by banks andstockbrokerage firmsa.are termedb.available-for-sale securitiesc.trading securitiesd.held-to-maturity securitiesmarketable securities2.Which of the following categories of investments are reported at their fair values on thebalance sheet andhave unrealized holding gains and losses included as a separate component ofstockholders' equity?a.held-to-maturity debt securitiesb.marketable securitiesc.available-for-sale securitiesd.trading securities3.Which of the following securities are reported at their amortized cost on the balance sheetdate?a.held-to-maturity debt securitiesb.marketable securitiesc.available-for-sale securitiesd.trading securities4.With consolidation, control generally occurs when the investor owns what percentage of thevoting stock ofthe investee?a.over 50%b.between 20% and 50%c.less than20%d.over 40%5.Which of the following methods of accounting for investments is appropriate when theinvestor has significant influence over the investee?a.equity methodb.consolidationc.cost methodd.lower of cost or market method6.How isthe premium or discount on held-to-maturity bond investments presented on thebalance sheet?

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a.as a part of the cost of the investment and amortized over a period not to exceed five yearsb.as a part of the cost of the investment and amortized over the remaining life of the bondsc.in a separate account that is reported separately from the bonds and amortized over a periodnot to exceed five yearsd.in a separate account that is reported separately from the investment account and notamortized7.On January 1, 2014, Macie Company purchased Jefferson Company's 9% bonds with a faceamount of$200,000 for $213,420 to yield 8%. The bonds mature on January 1, 2024, and Maciehas both the intent andability to hold these bonds to maturity. The bonds pay interest annuallyon December 31. Assuming Macieuses the effective interest method of amortizing the bondpremium; interest income reported on the December31, 2014, balance sheet would bea.$16,000b.$17,074c.$18,000d.$18,9268.On October 1, 2014, the Sun Company acquired 9% bonds of Jack’s Company with a facevalue of $400,000for $412,000 plus accrued interest. Interest is payable on June 30 andDecember 31. How would Sun recordthe initial bond investment to be held-to-maturity?a.Investment in Held-to-Maturity Debt Securities 412,000Interest Income 9,360Cash 421,360b.Investment in Held-to-Maturity Debt Securities 412,000Interest Income 9,000Cash 421,000c.Investment in Held-to-Maturity Debt Securities 421,000Cash 421,000d.Investment in Held-to-Maturity Debt Securities 412,000Cash 412,0009.On July 1, 2015, Jason Company purchased $60,000 of ten-year 6% bonds of Santo, Inc., for$51,850, to beheld-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 recordfor the six-month period ended December 31, 2015?a.$2,063.04b.$2,084.96c.$2,074.00d.$2,400.00

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10.On January 1, 2014, Old World Company purchased $300,000 of ten-year 10% bonds of NewCompany for$326,840. Interest is payable annually. The effective yield on the investment is 8%.What is the balance in OldWorld’s investment in held-to-maturity debt securities account(rounded to the nearest dollar, if necessary) atDecember 31, 2015?a.$330,693b.$326,840c.$322,987d.$318,82611.OnJuly 1, 2014, James Company purchased Timothy Company's six-year 9% bonds with aface 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 onMarch 1 and September 1. James uses thestraight-line method of amortization. The amount ofincome James should report for the calendar year 2014 asa result of this investment would bea.$8,823.52b.$9,882.36c.$9,529.40d.$8,117.6412.Thecarrying value of held-to-maturity debt securities is thea.original purchase amountb.amortized costc.market valued.lower of amortized cost or market value13.Unrealized holding gains and losses occur because a companya.actively trades securitiesb.holds securities until maturityc.holds securities through the end of the reporting periodd.records a change in fair value of the securities held even if they are not sold14.Which of the following regarding trading securities is correct?a.Trading securities are reported at cost on the balance sheet date, and unrealized holdinggainsand losses are included in income of the current period.b.Trading securities are reported at fair value on the balance sheet date, and unrealized holdinggains 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 holdinggains and losses arenotincluded in income of the current period.d.Trading securities are reported at cost on the balance sheet date, but unrealized holdinggainsand losses arenotincluded in income of the current period.

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