Lesson 11
Question 1 (10 points) Save
Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $150,000 on May 5, 2005, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2005. Goofy reclassified this investment as trading securities in December of 2006 when the market value had risen to $125,000. What effect on 2006 income should be reported by Goofy for the Crazy Co. shares?
1) $0.
2) $25,000 net loss.
3) $7,000 net gain..
4) $32,000 net loss.
Question 2 (10 points) Save
The equity method of accounting for investments in voting common stock is appropriate when:
1) The investor can significantly influence the investee.
2) The investor has voting control over the investee.
3) The investor intends to vote the common stock.
4) The investor is assured of a continued supply of a valuable raw material.
Question 3 (10 points) Save
Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:
1) Securities available for sale.
2) Consolidating securities.
3) Held-to-maturity securities.
4) Trading securities.
Question 4 (10 points) Save
When the equity method of accounting for investments is used by the investor, the investment account is increased when:
1) A cash dividend is received from the investee.
2) The investee reports a net income for the year.
3) The investor records additional depreciation related to the investment.
4) The investee reports a net loss for the year.
Question 5 (10 points) Save
The rules of FASB Statement No. 115, "Accounting for Certain Debt and Equity Securities," generally apply when the percentage of ownership of another company is:
1) Less than 20%.
2) 20% to 50%.
3) Over 50%.
4) Exactly 100%.
Question 6 (10 points) Save
The investment category for which the investor's "positive intent and ability to hold" is important is:
1) Securities reported under the equity method.
2) Trading securities.
3) Securities classified as held to maturity.
4) Securities available for sale.
Question 7 (10 points) Save
Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2006. Jack can significantly influence Jill. On December 10, 2006, Jill declared and paid $1 million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should Jack report on its income statement for 2006 relative to its investment in Jill?
1) $1 000,000.
2) $1,200,000.
3) $1,400,000.
4) $1,500,000.
Question 8 (10 points) Save
Both fair values and subsequent growth of the investee are irrelevant for investments in which of the following categories?
1) Securities reported under the equity method.
2) Trading securities.
3) Held-to-maturity securities.
4) Securities available for sale.
Question 9 (10 points) Save
Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on Jan 1, 2006. On
November 1, 2006, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss of $6 million for the year. What amount of loss should Sox report on its income statement for 2006 relative to its investment in Hack?
1) $1,100,000.
2) $2,400,000.
3) $1,500,000.
4) $1,600,000.
Question 10 (10 points) Save
The income statement reports changes in fair value for which type of securities?
1) Securities reported under the equity method.
2) Trading securities
3) Held-to-maturity securities.
4) Securities available for sale.
Question 1 (10 points) Save
Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $150,000 on May 5, 2005, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2005. Goofy reclassified this investment as trading securities in December of 2006 when the market value had risen to $125,000. What effect on 2006 income should be reported by Goofy for the Crazy Co. shares?
1) $0.
2) $25,000 net loss.
3) $7,000 net gain..
4) $32,000 net loss.
Question 2 (10 points) Save
The equity method of accounting for investments in voting common stock is appropriate when:
1) The investor can significantly influence the investee.
2) The investor has voting control over the investee.
3) The investor intends to vote the common stock.
4) The investor is assured of a continued supply of a valuable raw material.
Question 3 (10 points) Save
Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:
1) Securities available for sale.
2) Consolidating securities.
3) Held-to-maturity securities.
4) Trading securities.
Question 4 (10 points) Save
When the equity method of accounting for investments is used by the investor, the investment account is increased when:
1) A cash dividend is received from the investee.
2) The investee reports a net income for the year.
3) The investor records additional depreciation related to the investment.
4) The investee reports a net loss for the year.
Question 5 (10 points) Save
The rules of FASB Statement No. 115, "Accounting for Certain Debt and Equity Securities," generally apply when the percentage of ownership of another company is:
1) Less than 20%.
2) 20% to 50%.
3) Over 50%.
4) Exactly 100%.
Question 6 (10 points) Save
The investment category for which the investor's "positive intent and ability to hold" is important is:
1) Securities reported under the equity method.
2) Trading securities.
3) Securities classified as held to maturity.
4) Securities available for sale.
Question 7 (10 points) Save
Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2006. Jack can significantly influence Jill. On December 10, 2006, Jill declared and paid $1 million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should Jack report on its income statement for 2006 relative to its investment in Jill?
1) $1 000,000.
2) $1,200,000.
3) $1,400,000.
4) $1,500,000.
Question 8 (10 points) Save
Both fair values and subsequent growth of the investee are irrelevant for investments in which of the following categories?
1) Securities reported under the equity method.
2) Trading securities.
3) Held-to-maturity securities.
4) Securities available for sale.
Question 9 (10 points) Save
Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on Jan 1, 2006. On
November 1, 2006, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss of $6 million for the year. What amount of loss should Sox report on its income statement for 2006 relative to its investment in Hack?
1) $1,100,000.
2) $2,400,000.
3) $1,500,000.
4) $1,600,000.
Question 10 (10 points) Save
The income statement reports changes in fair value for which type of securities?
1) Securities reported under the equity method.
2) Trading securities
3) Held-to-maturity securities.
4) Securities available for sale.
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