Ch.9: Long-Term Investments

A premium on an investment in bonds would likely result when the contract rate is "what" in relation to the going market rate? a. above b. below

a. above

The equity method involves journal entries at the time the investee's earnings are announced, as well as when: a. dividends are paid b. market value declines

a. dividends are paid

Under the equity method, the investor's investment account goes up and down with the investees: a. equity b. cash

a. equity

The amortization method that results in a level amount of interest income each period was illustrated in this chapter. An alternative amortization method will be illustrated in subsequent chapters. The method shown is this chapter was the: a. straight-line method b. effective-interest method

a. straight-line method

Bond investments are initially entered into the accounts at cost; that is, the purchase price plus brokerage fees and other related acquisition costs. a. true b. false

a. true

Dividends received on investments are reported as income. a. true b. false

a. true

When accounting for available-for-sale securities, the amount of investee earnings has no direct effect on the investor's Investment account. a. true b. false

a. true

Which of the following categories/methods would be used to account for an investment in debt securities, where the intent of the investment was primarily for short-term profits? a.Trading securities b.Available-for-sale securities c.Held to maturity securities d.Equity method

a.Trading securities

Changes in market value of available-for-sale securities will directly impact: a.stockholders' equity b.net income

a.stockholders' equity

The equity method of accounting for an investment occurs when the investor has the ability to exercise significant influence over the investee, which is presumed to be the case when the investment level reaches: a. 10% b. 20%

b. 20%

When consolidating, which of the following accounts would be eliminated from the consolidated presentation: a. Goodwill b. Investment in Subsidiary

b. Investment in Subsidiary

In evaluating the correct accounting choice (e.g., held-to-maturity, etc.) for a particular investment, which of the following is most apt to be regarded as the "default" choice? a. trading securities b. available-for-sale securities

b. available-for-sale securities

Goodwill is the excess of the investment cost over "book value" or over "fair value" of the subsidiaries identifiable assets? a. book value b. fair value

b. fair value

The specific accounting treatment for a long-term investment depends on the type of security purchased, not the intent of the investment. a. true b. false

b. false

The excess of the cash received on a bond investment over the initial investment cost is recognized as: a. return of investment b. income

b. income

The amortization of a discount on a bond investment causes interest income to be: a. reduced b. increased

b. increased

On April 1, 20X1, Collinge Corporation purchased $100,000 of 7%, 5-year bonds dated April 1, 20X1, at 101. Interest is paid on March 31 and September 30. Assuming use of the straight-line amortization method, the proper amount of income to record on September 30, 20X1 is: a. $7,000 b.$3,400 c.$3,500 d.$3,600

b.$3,400

Investor Corporation owns 30% of Investee Corporation. Investee had net earnings of $100,000 during the year and paid dividends of $30,000. Investor's Investment in Investee account contained a $70,000 balance at the beginning of the year. What would be the correct balance of this account at the end of the year? a. $70,000 b.$91,000 c.$100,000 d.$140,000

b.$91,000

On January 1, 20X2, Miller Corporation purchased $100,000 of 5%, 10-year bonds dated January 1, 20X2, at 98. Interest is paid on June 30 and December 31 of each year. Assuming use of the straight-line amortization method, the proper amount to report for Investment in Bonds at December 31, 20X3 is: a.$98,000 b.$98,400 c.$100,000 d.$101,600

b.$98,400

Investments in Bonds that the investor intends to hold to maturity should be disclosed on the balance sheet: a.At their face value minus any unamortized premiums. b.At their face value plus any unamortized premiums. c.At their maturity value. d.At their face value.

b.At their face value plus any unamortized premiums.

On June 1, Pennell Corporation purchased $100,000 of 9%, 5-year bonds. The bonds are dated June 1, 20X1. The bonds were issued at 96, and pay interest on December 1 and June 1. The entry to record the investment in bonds is: a.Investment in Bonds 100,000 Cash 100,000 b.Investment in Bonds 96,000 Cash 96,000 c.Investment in Bonds 104,000 Cash 104,000 d.Investment in Bonds 96,000 Interest Income 4,000 Cash 100,000

b.Investment in Bonds 96,000 Cash 96,000

When the contract interest rate for a bond exceeds the effective interest rate of the bond, then: a.The price of the bond will be equal to the future cash flow associated with the bond. b.The bond will be issued at a premium. c.The bond will be issued at a discount. d.The face value of the bond will fluctuate over its life.

b.The bond will be issued at a premium.

Mega Corporation owns 100% of Wolf Corporation's stock. Mega paid $1,000,000 for its investment. At the time of the initial investment, Wolf had total stockholders' equity of $600,000. All of Wolf's assets and liabilities were carried at amounts that equaled their fair value, except for a building that was undervalued by $100,000. How much goodwill would you anticipate finding in the consolidated balance sheet? a.$0 b.$100,000 c.$300,000 d.$400,000

c.$300,000