1.
Which of the following would be considered an âOther Comprehensive
Incomeâ item?
a.
net
income.
b.
extraordinary
loss related to flood.
c.
gain on
disposal of discontinued operations.
d.
unrealized
loss on available-for-sale securities.
2. Which of the following is not a part of
comprehensive income?
a.
foreign
currency items
b.
restructuring
charges
c.
unrealized
gains and losses
d.
pension
liability adjustments
3. Companies may report comprehensive income on each of the
statements below except
a.
income
statement
b.
separate
statement of comprehensive income
c.
statement
of stockholdersâ equity
d.
retained
earnings statement
4. An investor purchased 500 shares of common stock, $25
par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the
sale?
a.
$12,750
gain
b.
$600 gain
c.
$600 loss
d.
$9,250
loss
5. During the current year, the Yankton Company purchased
200 shares of in the Sorros Company for $13,000 as a temporary investment
(trading security). At the end of the year, the market value of the stock was
$11,000. The Yankton Company’s financial
statements for the current year should show
a.
a loss of
$2,000 on the income statement and a net trading investments (at fair value)
of $13,000 on the balance sheet
b.
no loss
on the income statement and a net trading investments (at fair value)s of
$13,000 on the balance sheet
c.
a gain of
$2,000 on the income statement and a net trading investments (at fair value)
of $11,000 on the balance sheet
d.
a loss of
$2,000 on the income statement and a net trading investments (at fair value)
of $11,000 on the balance sheet
6. The account Unrealized Loss on Available-for-Sale
Investments in Stock should be included in the
a.
Income
statement
b.
Balance
sheet as an addition to Temporary Investments in Stock
c.
Balance
sheet as a deduction in Stockholders’ Equity
d.
Statement
of Retained Earnings
7. The equity method of accounting for investments
a.
requires
a year-end adjustment to revalue the stock to lower of cost or market
b.
requires
the investment to be reported at its original cost
c.
requires
the investment be increased by the reported net income of the investee
d.
requires
the investment be decreased by the reported net income of the investee
8. Armando Company owns 15,000 of the 50,000 shares of
common stock outstanding of Tito Company and exercises a significant influence
over its operating and financial policies.
The investment should be accounted for by the
a.
equity
method
b.
market
method
c.
cost or
market method
d.
cost
method
9. Under the equity method, the receipt of cash dividends on
an investment in common stock of Vallerio Corporation is accounted for as a
debit to Cash and a credit to
a.
Investment
in Vallerio
b.
Retained
Earnings
c.
Dividend
Revenue
d.
Dividend
Receivables
10. Long-term investments are held for all of the listed
reasons below except
a.
their
income
b.
long-term
gain potential
c.
influence
over another business entity
d.
meet
current cash needs
11. When shares of stock held as an investment are sold, the
difference between the proceeds and the carrying amount of the investment is
recorded as a(n)
a.
prior
period adjustment
b.
extraordinary
gain or loss
c.
paid-in
capital addition
d.
gain or
loss
12. Investments such as Trading Securities &
Available-for-sale securities are
a.
recorded
at cost but reported at fair market value
b.
recorded
at cost and reported at cost
c.
recorded
at cost but reported at lower of cost or fair market value
d.
recorded
at fair market value and reported at fair market value
13. Blanton Corporation purchased 17% of the outstanding shares
of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net
income and declared and paid cash dividends.
What journal entry would Blanton Corporation use to record the purchase
of Worton Corporation common stock?
a.
debit
Investment in Worton Corporation; credit Cash
b.
debit
Cash; credit Dividend Revenue
c.
debit
Investment in Worton Corporation; credit Income of Worton Corporation
d.
debit
Cash; credit Investment in Worton Corporation
14. Blanton Corporation purchased 17% of the outstanding shares
of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net
income and declared and paid cash dividends.
What journal entry would Blanton Corporation use to record dividends
from Worton Corporation?
a.
debit
Investment in Worton Corporation; credit Cash
b.
debit
Cash; credit Dividend Revenue
c.
debit
Investment in Worton Corporation; credit Income of Worton Corporation
d.
debit
Cash; credit Investment in Worton Corporation
15. Blanton Corporation purchased 35% of the outstanding shares
of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net
income and declared and paid cash dividends.
What journal entry would Blanton Corporation use to record its share of
the earnings of Worton Corporation?
a.
debit
Investment in Worton Corporation Stock; credit Cash
b.
debit
Cash; credit Dividend Revenue
c.
debit
Investment in Worton Corporation; credit Income of Worton Corporation
d.
debit
Cash; credit Investment in Worton Corporation
16. Parker Company owns 83% of the outstanding stock of Tadeo
Company. Parker Company is referred to
as the
a.
parent
b.
minority
interest
c.
affiliate
d.
subsidiary
17. Gale Company owns 87% of the outstanding stock of Leonardo
Company. Leonardo Company is referred to
as the
a.
parent
b.
minority
interest
c.
affiliate
d.
subsidiary
18. Financial statements in which financial data for two or
more companies are combined as a single entity are called
a.
conventional
statements
b.
consolidated
statements
c.
audited
statements
d.
constitutional
statements
19. In general, consolidated financial statements should be
prepared
a.
when a
corporation owns more than 20% of the common stock of another company
b.
when a
corporation owns more than 50% of the common stock of another company
c.
only when
a corporation owns 100% of the common stock of another company
d.
whenever
the market value of the stock investment is significantly lower than its cost
20. For accounting purposes, the method used to account for
investments in common stock is determined by
a.
the
amount paid for the stock by the investor.
b.
whether
the acquisition of the stock by the investor was “friendly” or
“hostile.”
c.
the
extent of an investor’s influence over the operating and financial affairs of
the investee (indicated by the
share of ownership possessed).
d.
whether
the stock has paid dividends in past years.
21. The company whose stock is owned by the parent company is
called the
a.
controlled
company.
b.
investee
company.
c.
subsidiary
company.
d.
sibling
company.
22. A company that owns more than 50% of the common stock of
another company is known as the
a.
parent
company.
b.
management
company.
c.
subsidiary
company.
d.
in-charge
company.
23. All of the following are disadvantages of fair value use except:
a.
fair
values may not be readily obtainable.
b.
fair
values may cause more fluctuations as change occurs from period to period.
c.
comparability
between companies may be impacted by different fair value measurement.
d.
fair
values can only be reflected in balance sheet accounts.
24. Why do companies invest in other companies?
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