ACC301 Exam 3

when the stated rate does not equal the market rate at the date of issuance, the entry to record the issuance of the note will include -either a credit to discount on notes receivable or a debit to the premium on notes receivable -either a debit to discount on notes receivable or a credit to premium on notes receivable -a debit to cash and a credit to notes receivable for the face amount of the note -credits to notes receivable and interest receivable

-either a credit to discount on notes receivable or a debit to the premium on notes receivable

equity securities acquired by a corporation which are accounted for by recognizing unrealized holdings gains or losses are -securities where a company has holdings of more than 50% -securities where a company has holdings of less than 20% -securities where a company has holdings of more than 20% -securities where a company has holdings of between 20% and 50%

-securities where a company has holdings of less than 20%

KFG corporation purchased a 2% interest in the stock of Granger Company as part of its trading securities portfolio. concerning this investment, KFG will report -a current asset on its balance sheet, and investment revenue and unrealized gains and losses on its income statement -a current asset on its balance sheet, and dividend revenue and unrealized holding gains and losses on its income statement -a current asset on its balance sheet, dividend revenue on its income statement, and an unrealized holding gains and losses in comprehensive income -a long-term asset on its balance sheet, and investment revenue and unrealized gains and losses on its income statement

a current asset on its balance sheet, and dividend revenue and unrealized holding gains and losses on its income statement

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn should ordinarily record a cash dividend received from Sells as -a reduction of the carrying value of the investment -additional paid-in capital -an addition to the carrying value of the investment -dividend income

a reduction of the carrying value of the investment

examples of the ability to exercise significant influence over an investee include all of the following except: -material intracompnay transactions -interchange of managerial personnel -technological dependency -all of these choices are examples of significant influence

all of the answer choices are examples of significant influence (all of the answer choices are examples of the ability to exercise significant influence over an investee. this is the best answer)

held-to-maturity securities are reported at their: -fair value -historical cost -amortized cost -net realizable value

amortized cost (held-to-maturity securities are reported at their amortized cost)

debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are -available-for-sale debt securities -never-sell debt securities -held-to-maturity debt securities -trade debt securities

available-for-sale debt securities

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment -by using the equity method -by using the fair value method -by using the effective interest method -by consolidation

by using the fair value method

when a customer purchases inventory from a business organization, they may be given a discount which is designed to induce prompt payment such a discount is called a(n) -enhancement discount -cash discount -trade discount -nominal discount

cash discount

short-term paper with maturities of less than 3 months should be classified as -cash equivalents -receivables -investments -temporary investments

cash equivalents (short-term paper with maturities of less than 3 months should be classified as cash equivalents)

if the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the investment in the subsidiary under the -consolidation method -cost method -equity method -fair value method

consolidation method (holdings of more than 50% are accounted for under the consolidation method)

under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of: -dividends paid by the investee -declines in the fair value of the investment -the losses of the investee -all of these answer choices are correct

declines in the fair value of the investment (dividends paid by the investee and losses of the investee decreases the investment account. the investment account is not affected by changes in the investment's fair value under the equity method)

which of the following methods of determining annual bad debt expense violates the expense recognition concept? -direct write-off -percentage of sale -percentage of average accounts receivable -percentage of ending accounts receivable

direct write-off (the direct write-off method usually fails to record expenses in the same period as the associated revenue and therefore violates the expense recognition concept. percentage of sales and percentage of receivables both estimate bas debt expense and report in the same period as the related sales)

an ownership interest of 15% in another company's voting stock should be accounted for using the: -equity method -fair value method -cost method -consolidation method

fair value method (a holding of 15% in another company's voting stock would allow the investor company little or no influence over the investee company and would be accounted for using the fair value method)

when the allowance method of recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off would -increase net income -have no effect on the allowance for uncollectible accounts -decrease the allowance for uncollectible accounts -increase the allowance for uncollectible accounts

increase the allowance for uncollectible accounts (DR: AR CR: Allowance for uncollectibles DR: Cash CR: AR The first entry reinstates the amount of allowance used up when the account was originally written off. the normal balance in the account is a credit. the first entry increases the account)

a cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and -is so near its maturity that there is an insignificant risk of changes in interest rates -is acceptable as a means to pay current liabilities -bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation -has a current market value that is greater than its original cost

is so near its maturity that there is an insignificant risk of changes in interest rates

all of the following are properly classified as temporary investments except: -certificates of deposits (CDs) -money market funds (no checking privileges) -money market certificates -money orders

money orders (items appropriately classified as temporary investments include money market funds, money market savings certificates, and certificates of deposit (CDs). money orders are viewed as cash)

santo corporation declares and distributes a cash dividend that is a result of current earnings. how will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Values Method, Equity Method -increase, decrease -no effect, decrease -no effect, no effect -decrease, no effect

no effect, decrease

unrealized gains and loses on held-to-maturity securities are: -reported on the balance sheet -reported on the income statement -not recognized because these securities are reported at their amortized cost -non of these answer choices are correct

not recognized because these securities are reported at their amortized cost (unrealized gains and losses are not recognized.reported on held-to-maturity securities because they are reported at their amortized cost. unrealized gains and losses only occur when reporting an investment at its fair value)

all of the following are nontrade receivable except: -open accounts resulting from short-term extensions of credit -claims against insurance companies for casualties sustained -interest receivable -deposits paid as a guarantee of performance

open accounts resulting from short-term extensions of credit (open accounts resulting from short-term extensions of credit are accounts receivable, a form of trade receivables. all the other choices are types of nontrade receivables)

in gross method of recording cash discounts, sales discounts are: -recorded when payment is received within the discount period -recorded at the time of sale -ignored unless they are material in amount -never recorded

recorded when payment is received within the discount period (under the gross method, sales discounts are recorded only when payment is received within the discount period)

under the equity method, if an investee company generates net income, the investor company: -records its proportionate share as an increase in its investment account -records its proportionate share of the net income as dividend income -records its proportionate share as an unrealized gain -does not recognize any share of the net income

records its proportionate share as an increase in its investment account (under the equity method, the investor's investment account is increased for its proportionate share of the investee company's net income)

cash consists of all of the following except: -personal checks -short-term paper with a maturity of 6 months -money orders -certified checks

short-term paper with a maturity of 6 months (all of the options are considered cash except short-term paper with a maturity of 6 months, which is classified as a temporary investment)

the interest rate included in the promissory note contract is the -the interest rate used to discount the cash flows -the effective-interest rate -the nominal rate -the market rate

the nominal rate

the present value of a note is determined by adding -the present value of the face amount and the present value of the annuity of interest receipts -the face amount of the note and the discount on notes payable -the present value of the total interest to be received and the discount on notes payable -the face amount of the note and the total interest to be received

the present value of the face amount and the present value of the annuity of interest receipts

unrealized holding gains or losses are recognized in income are from debt securities classified as -held-to-maturity -available-for-sale -trading -none of these answers are correct

trading

cash can be classified as a current or long-term asset -true -false

true (companies classify restricted cash either in the current assets or in the long-term assets section, depending on the date of availability or disbursement. cash classified in the long-term section is frequently set aside for plant expansion or retirement of long-term debt)

a cash discount of 1/10, n/30 means the customer gets a: -10% discount if they pay within 20 days -10% discount if they pay within 30 days -1% discount if they pay within 20 days -1% discount if they pay within 10 days

1% discount if they pay within 10 days (the discount if 1% and the discount period is 10 days)