Docsity
Log inSign up
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search Store documents

The best documents sold by students who completed their studies

Search through all study resources
Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

University Rankings

Discover the best universities in your country according to Docsity users

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

From our blog

Exams and Study
Go to the blog

question pool ch 8 Accounting.doc, Lecture notes of Accounting

Abertay UniversityAccounting

question pool ch 8 Accounting.doc

Typology: Lecture notes

2019/2020

Uploaded on 07/09/2020

AlisonJC
AlisonJC 🇬🇧

3.9

(7)

65 documents

1 / 51

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Financial Accounting, 9e (Harrison/Horngren/Thomas)
Chapter 8 Long-Term Investments & the Time Value of Money
8.1 Learning Objective 8-1
1) Long-term investments are listed on the balance sheet after current assets and property,
plant, and equipment.
Answer: FALSE
Diff: 2
LO: 8-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
2) Investments can never be classified as short-term investments.
Answer: FALSE
Diff: 1
LO: 8-1
AASCB: Analytical Skills
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) Stocks and bonds projected to be held for longer than one year are long-term
investments.
Answer: TRUE
Diff: 2
LO: 8-1
AICPA Functional: Measurement
4) On the balance sheet, assets are listed by dollar amount (lowest to highest).
Answer: FALSE
Diff: 1
LO: 8-1
AASCB: Analytical Skills
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
5) Long-term investments are more liquid than property, plant, and equipment, but less
liquid than current assets.
Answer: TRUE
Diff: 2
LO: 8-1
AICPA Functional: Measurement
1
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
pf3
pf4
pf5
pf8
pf9
pfa
pfd
pfe
pff
pf12
pf13
pf14
pf15
pf16
pf17
pf18
pf19
pf1a
pf1b
pf1c
pf1d
pf1e
pf1f
pf20
pf21
pf22
pf23
pf24
pf25
pf26
pf27
pf28
pf29
pf2a
pf2b
pf2c
pf2d
pf2e
pf2f
pf30
pf31
pf32
pf33

Partial preview of the text

Download question pool ch 8 Accounting.doc and more Lecture notes Accounting in PDF only on Docsity!

Financial Accounting, 9e (Harrison/Horngren/Thomas)

Chapter 8 Long-Term Investments & the Time Value of Money

8.1 Learning Objective 8-

  1. Long-term investments are listed on the balance sheet after current assets and property, plant, and equipment. Answer: FALSE Diff: 2 LO: 8- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. Investments can never be classified as short-term investments. Answer: FALSE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. Stocks and bonds projected to be held for longer than one year are long-term investments. Answer: TRUE Diff: 2 LO: 8- AICPA Functional: Measurement
  4. On the balance sheet, assets are listed by dollar amount (lowest to highest). Answer: FALSE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  5. Long-term investments are more liquid than property, plant, and equipment, but less liquid than current assets. Answer: TRUE Diff: 2 LO: 8- AICPA Functional: Measurement
  1. An investment is a held-to-maturity investment if it is management's intent to sell the investment. Answer: FALSE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. Bonds of publicly traded companies are traded similarly to stocks. Answer: TRUE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. The interest rate on a bond determines the amount of interest the debtor company is expected to pay. Answer: TRUE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. Market prices of bonds have no correlation to market interest rate. Answer: FALSE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  5. If the market interest rate is greater than the face rate of interest on a bond, the bond will sell at a discount. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

AICPA Functional: Measurement

  1. Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation is the: A) investee. B) investor. C) controlling company. D) parent company. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Small Time Company is the: A) investee. B) investor. C) controlling company. D) parent company. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation will show the investment on their books as: A) an asset. B) an equity. C) a liability. D) other comprehensive income. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. When the investment is readily convertible to cash and the investor plans to convert the investment to cash within one year, the investment is shown on the balance sheet as: A) short-term. B) long-term. C) equity. D) either long-term or short-term. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. The following is the proper order for assets on a balance sheet: A) Cash, intangibles, inventories, and long-term investments. B) Cash, accounts receivable, property, plant and equipment, and long-term investments. C) Cash, long-term investments, property, plant and equipment, and intangibles. D) Cash, long-term investments, prepaid expenses and property, plant and equipment. Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. All investments not classified as available-for-sale investments or trading securities are: A) equity investments. B) debt investments. C) held-to-maturity investments. D) profitable investments. Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The adjusting entry to accrue interest on December 31, 2012 would include a: A) debit to Cash $3,000. B) debit to Cash $6,000. C) debit to Interest Receivable $3,000. D) debit to Interest Receivable $6,000. Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The adjusting entry to amortize the bond investment on December 31, 2012 would include a: A) debit to Cash $200. B) debit to Cash $1,200. C) debit to Long-Term Investment in Bonds $1,200. D) debit to Long-Term Investment in Bonds $ 200. Answer: C Diff: 2 LO: 8- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry for the receipt of interest on January 1, 2012 would include a: A) credit to Interest Revenue $6,000. B) credit to Interest Receivable $6,000. C) credit to Interest Revenue $3,000. D) credit to Interest Receivable $3,000. Answer: D Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a: A) debit to Interest Receivable for $1,500. B) credit to Interest Revenue for $1,500. C) credit to Interest Revenue for $3,000. D) debit to Interest Receivable for $3,000. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a: A) debit to Interest Receivable for $1,500. B) credit to Interest Revenue for $1,500. C) credit to Interest Revenue for $3,000. D) debit to Interest Receivable for $3,000. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. On January 1, Bucket Company purchased as an investment a $1,000, 7% bond for $980. Bucket plans to hold the bond for two years. The bond pays interest on January 1 and July 1. The entry to record the interest accrual on December 31 would include a: A) debit to Interest Receivable for $35. B) debit to Long-Term Investment in Bonds for $35. C) debit to Interest Receivable for $70. D) debit to Long-Term Investment in Bonds for $70. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 would include a: A) debit to Cash $1,050. B) debit to Long-Term Investment in Bonds $42,000. C) credit to Interest Receivable $1,050. D) credit to Interest Receivable $42,000. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

8.2 Learning Objective 8-

  1. Dividend revenue is recorded in a stock dividend. Answer: FALSE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. Unrealized Gain/Loss on investments account appears under other comprehensive income on a separate section of the income statement. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. Available-for-sale investments in stock are reported on the balance sheet at cost. Answer: FALSE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. Available-for-sale investments are adjusted from cost to market value. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  5. The Allowance to Adjust Investments account is a Long-Term Asset account. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. Unrealized gains and losses result from changes in the investments fair value. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. The Allowance to Adjust Investment to Market account will always have a debit balance. Answer: FALSE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. GAAP requires companies to adjust their available-for-sale-securities to market value as of the balance sheet date. Answer: TRUE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. For accounting purposes, receipt of a stock dividend is handled the same as a receipt of a cash dividend. Answer: FALSE Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. The Allowance to Adjust Investment to Market is a companion to Interest Receivable. Answer: FALSE Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. On purchase date, Available-for-sale investments in stock are recorded at: A) their cost. B) the lower-of-cost-or-market. C) their amortized cost. D) their realizable value. Answer: A Diff: 1 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. On the balance sheet, Available-for-sale investments in stock are reported at: A) their cost. B) the lower-of-cost-or-market. C) their amortized cost. D) their current market value. Answer: D Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. Perdue Company had the following transactions pertaining to stock investments:
  • February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share.
  • June 1, Received cash dividends of $6,000 on Hudson Company stock.
  • October 1, Sold 3,000 shares of Hudson stock for $54,000. The entry to record the purchase of the Hudson stock would include a: A) debit to Long-Term Investment for $51,000. B) credit to Long-Term Investment for $51,000. C) credit to Dividend Revenue for $6,000. D) debit to Short-Term Investment for $6,000. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. Perdue Company had the following transactions pertaining to stock investments:
  • February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share.
  • June 1, Received cash dividends of $6,000 on Hudson Company stock.
  • October 1, Sold 3,000 shares of Hudson stock for $54,000. The entry to record the receipt of the dividends would include a: A) debit to Long-Term Investment for $6,000. B) credit to Long-Term Investment for $6,000. C) credit to Dividend Revenue for $6,000. D) debit to Dividend Revenue for $6,000. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. If 15% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is: A) the available-for-sale method (Market value method). B) the equity method. C) the preparation of the consolidated financial statements. D) agreed upon with owners of the remaining 90% of stock. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. The available-for-sale method (market value method) of accounting for long-term investments in stock should be used when the: A) investor owns more than 50% of the investee's stock. B) investor has significant influence over the investee's operating decisions and policies. C) investor has little or no influence on the investee. D) investor is a parent company. Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. The market value of an available-for-sale security has decreased from the last carrying value. The journal entry to record this decrease will include: A) a debit to the Allowance to Adjust Investment to Market. B) a credit to the Allowance to Adjust Investment to Market. C) a credit to the Unrealized Loss on Investment. D) a debit to the Unrealized Loss on Investment. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  1. The Allowance to Adjust Investment to Market has a debit balance. Therefore: A) the Allowance account is subtracted from the carrying amount. B) the Allowance account is added to the carrying amount. C) the Allowance account is neither added nor subtracted from the carrying amount. D) the Allowance account is added to Unrealized Gain or Loss. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. The market value of an available-for-sale security has increased from the last carrying value. The journal entry to record this increase will include: A) a debit to the Allowance to Adjust Investment to Market. B) a credit to the Allowance to Adjust Investment to Market. C) a debit to the Unrealized Gain on Investment. D) no adjustment is required. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. Unrealized gains and losses from available-for-sale investments arise from: A) the purchase of an investment. B) the sale of the investment. C) changes in the market value of the investment. D) management's decision to adjust the value of the investment. Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. Realized gains and losses from available-for-sale investments arise from: A) the purchase of an investment. B) the sale of the investment. C) changes in the market value of the investment. D) management's decision to adjust the value of the investment. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  5. On the balance sheet, available-for-sale investments in stock are reported as: A) long-term assets. B) current assets. C) both long-term assets and stockholders' equity. D) either current assets or long-term assets, depending on when the investment is expected to be sold. Answer: D
  1. When accounting for available-for-sale securities, which of the following is used to compute net income? A) Unrealized gains B) Realized gains C) Both unrealized gains and realized gains D) Neither realized gains nor unrealized gains Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. Receiving a stock dividend from an available-for-sale investment requires the following journal entry: A) a debit to Cash and a credit to Dividend Revenue. B) a debit to Cash and a credit to Unrealized Gain on Investments. C) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue. D) no journal entry. Investor makes a memorandum entry in the accounting records. Answer: D Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  3. Receiving a cash dividend from an available-for-sale investment requires the following journal entry: A) a debit to Cash and a credit to Dividend Revenue. B) a debit to Cash and a credit to Unrealized Gain on Investments. C) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue. D) no journal entry. Investor makes a memorandum entry in the accounting records. Answer: A Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  4. Receiving a cash dividend affects what part of the balance sheet? A) Increases assets and increases paid-in-capital B) Increases assets and decreases stockholders' equity C) Increases assets and increases retained earnings D) Has no effect on assets or total equity Answer: C Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  5. Receiving a stock dividend affects what part of the balance sheet? A) Increases assets and increases paid-in-capital B) Increases assets and decreases stockholders' equity C) Increases assets and increases retained earnings D) Has no effect on assets or total equity

Answer: D Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

  1. As a result of a stock dividend: A) the investor's total cost in the investment increases. B) the investor's cost per share decreases. C) a journal entry is needed to record the receipt of the stock dividend D) dividend revenue increases. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
  2. The gain or loss on the sale of an investment classified as "available-for-sale" is calculated by comparing the cost of the investment with the: A) lower-of-cost-or-market value of the investment. B) amount received from the sale of the investment. C) market value of the investment. D) amortized cost of the investment. Answer: B Diff: 2 LO: 8- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement