Multiple Choice Question

| September 29, 2018

Multiple
Choice Question 49

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Reed Company acquires 80 Holmes 10%, 5 year, $1,000 bonds on
January 1, 2012 for $82,000. This includes a brokerage commission of $2,000.
The journal entry to record this investment includes a debit to

Cash
for $82,000.

Stock
Investments for $80,000.

Debt
Investments for $80,000.

Debt
Investments for $82,000.

Multiple
Choice Question 51

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Reed Company acquires 80 Holmes 10%, 5 year, $1,000 bonds on
January 1, 2012 for $82,000. This includes a brokerage commission of $2,000. If
Reed sells all of its Holmes Bonds for $83,200 and pays $2,400 in brokerage
commissions, what gain or loss is recognized?

Gain
of $3,200

Loss
of $1,200

Gain
of $1,200

Gain
of $4,800

Multiple
Choice Question 54

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On January 1, 2012, the Borth Company purchased at face value, a
$1,000, 6%, bond that pays interest on January 1 and July 1. Borth Company has
a calendar year end. The adjusting entry on December 31, 2012, is

Interest Receivable

30

Debt Investments

30

Cash

30

Interest Revenue

30

not
required.

Interest Receivable

30

Interest Revenue

30

Multiple Choice Question 75

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On August 1, Dogwood Company buys 2,000 shares of XYZ common
stock for $60,000 cash plus brokerage fees of $1,200. On December 1, the
stock investments are sold for $76,000 in cash. Which of the following are
the correct journal entries of record for the purchase and sale of the common
stock?

Aug. 1

Cash

61,200

Stock Investments

61,200

Dec. 1

Stock Investment

76,000

Cash

61,200

Gain on Sale of Stock Investments

14,800

Aug. 1

Cash

61,200

Stock Investments

61,200

Dec. 1

Cash

76,000

Stock Investments

61,200

Gain on Sale of Stock Investments

14,800

Aug. 1

Stock Investments

61,200

Cash

61,200

Dec. 1

Stock Investment

76,000

Cash

61,200

Gain on Sale of Stock Investments

14,800

Aug. 1

Stock Investments

61,200

Cash

61,200

Dec. 1

Cash

76,000

Stock Investments

61,200

Gain on Sale of Stock Investments

14,800

Multiple
Choice Question 76

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Lanier Industries owns 45% of McCoy Company. For the current year,
McCoy reports net income of $250,000 and declares and pays a $60,000 cash
dividend. Which of the following correctly presents the journal entries to
record Lanier’s equity in McCoy’s net income and the receipt of dividends from
McCoy?

Dec. 31

Stock Investments

112,500

Revenue
from Investment in McCoy Company

112,500

Dec. 31

Cash

60,000

Stock
Investments

60,000

Dec. 31

Revenue from Investment in McCoy Company

112,500

Stock
Investments

112,500

Dec. 31

Stock Investments

27,000

Cash

27,500

Dec. 31

Stock Investments

85,500

Revenue
from Investment in McCoy Company

85,500

Dec. 31

Stock Investments

112,500

Revenue
from Investment in McCoy Company

112,500

Dec. 31

Cash

27,000

Stock
Investments

27,000

Multiple
Choice Question 77

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On January 1, 2012, Bartley Corp. paid $1,200,000 for 100,000
shares of Oak Company’s common stock, which represents 40% of Oak’s outstanding
common stock. Oak reported income of $300,000 and paid cash dividends of
$90,000 during 2012 Bartley should report the investment in Oak Company on its
December 31, 2012, balance sheet at

$1,284,000

$1,236,000

$1,200,000

$1,116,000

Multiple
Choice Question 83

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Terrell Corporation makes an investment in 200 shares of Simpson
Company’s common stock. The stock is purchased for $50 a share plus brokerage
fees of $800. The entry for the purchase is:

Stock Investments

10,000

Cash

10,000

Debt Investments

10,000

Cash

10,000

Stock Investments

10,800

Cash

10,800

Stock Investments

10,000

Brokerage Fee Expense

800

Cash

10,800

Multiple
Choice Question 85

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For accounting purposes, the method used to account for
investments in common stock is determined by

whether
the stock has paid dividends in past years.

whether
the acquisition of the stock by the investor was “friendly” or
“hostile.”

the
amount paid for the stock by the investor.

the
extent of an investor’s influence over the operating and financial affairs of
the investee.

Multiple
Choice Question 86

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Hamilton Corporation sells 200 shares of common stock being held
as an investment. The shares were acquired six months ago at a cost of $40 a
share. Hamilton sold the shares for $45 a share. The entry to record the sale
is

Cash

9,000

Gain on Sale
of Stock Investments

1,000

Stock
Investments

8,000

Stock Investments

8,000

Loss on Sale of Stock Investments

1,000

Cash

9,000

Cash

9,000

Stock
Investments

9,000

Cash

8,000

Loss on Sale of Stock Investments

1,000

Stock
Investments

9,000

Multiple
Choice Question 96

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Under the cost method of accounting for dividends

Investment
Revenue is credited when dividends are received.

the
Investment account is credited when the investee reports a net income.

the
Investment account is credited when dividends are received.

Investment
Revenue is credited when the investee reports a net income.

Multiple
Choice Question 107

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Hagan Company owns 10% interest in the stock of Nelsen
Corporation. During the year, Nelsen pays $80,000 in dividends to Hagan, and
reports $400,000 in net income. Hagan Company’s investment in Nelsen will
increase Hagan net income by

$80,000.

$40,000.

$96,000.

$8,000.

Multiple
Choice Question 120

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If a stock investment is sold at a gain, the gain

is
reported in the Other Revenue and Gain section of the income statement.

contributes
to gross profit on the income statement.

is
reported under a special section, “Discontinued investments,” on
the income statement.

is
reported as operating revenue.

Multiple
Choice Question 131

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When a company owns more than 50% of the common stock of another
company

they
recognize revenue when dividends are received.

consolidated
financial statements are usually prepared.

they
are referred to as the subsidiary.

the
cost method of accounting is used.

Multiple
Choice Question 132

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The company whose stock is owned by the parent company is called
the

investee
company.

sibling
company.

controlled
company.

subsidiary
company.

Multiple
Choice Question 137

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In recognizing a decline in the fair value of short-term stock investments,
an Unrealized Loss account is debited because

management
intends to realize this loss in the near future.

the
securities have not been sold.

the
stock market is volatile.

management
cannot determine the exact amount of the loss in value.

Multiple
Choice Question 140

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At the end of the first year of operations, the total cost of the
trading securities portfolio is $180,000 and the total fair value is $174,000.
What should the financial statements show?

A
reduction of an asset of $6,000 and an unrealized loss of $6,000 in the
stockholders’ equity section.

A
reduction of an asset of $6,000 in the current assets section and an
unrealized loss of $6,000 under “Other expenses and losses.”

A
reduction of an asset of $6,000 and a realized loss of $6,000.

A
reduction of an asset of $6,000 in the current assets section and a realized
loss of $6,000 under “Other expenses and losses.”

Multiple
Choice Question 148

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Which of the following would not be reported under “Other
Revenues and Gains” on the income statement?

Gain on
sale of debt investments.

Interest
revenue.

Unrealized
gain on available-for-sale securities.

Dividend
revenue.

Multiple
Choice Question 149

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If the cost of an available-for-sale security exceeds its fair
value by $40,000, the entry to recognize the loss

will
show a credit to a valuation allowance account that appears in the
stockholders’ equity section of the balance sheet.

will
show a debit to an unrealized loss account that is deducted in the
stockholders’ equity section of the balance sheet.

is not
required since the share prices will likely rebound in the long run.

will
show a debit to an expense account.

Multiple
Choice Question 159

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At December 31, 2012, the trading securities for Mayfair, Inc. are
as follow

Fair Value

Security

Cost

12/31/12

X

$90,000

$92,000

Y

150,000

142,000

Z

32,000

28,000

Mayfair should report the following amount related to the
securities transactions in its 2012 income statement

$2,000
gain.

$10,000
realized loss.

$12,000
unrealized loss.

$10,000
unrealized loss.

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