Accounting 102 Chapters 15-16

Short-term investments are

(1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer

Bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity are called

Callable Bonds

Which of the following would not be classified as a short-term investment?

Idle cash in a bank checking account

Which one of the following amounts increases each period when accounting for a long-term mortgage payable?

Reduction of principal

All of the following statements about short-term investments are true except:

Short-term investments are listed below accounts receivable in the current asset section of the balance sheet.

Which of the following is not a condition under which the lessee must record the lease as finance lease?

The lease term is equal to 60% of the economic life of the lease property.

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

Unrealized gain on available-for-sale securities

The account, Stock Investments, is

a general ledger control account.

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

an operating lease.

The balance in the Unrealized Gain or Loss—Equity account will

appear in the stockholders' equity section.

Reporting investments at fair value is

applicable to both debt and stock securities

All of the following are long-term liabilities except

bonds payable, mortgage payable, lease liabilities.

The amortization of the bond premium decreases

both interest expense and bond carrying value.

When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash paid and the

carrying value of the bonds

Short-term investments are listed on the balance sheet immediately below

cash.

The term used for bonds that are unsecured is

debenture bonds

Available-for-sale securities are classified as

either short-term or long-term investments.

In accounting for stock investments between 20% and 50%, the _______ method is used.

equity

Short-term stock investments should be valued on the balance sheet at

fair value.

A company may purchase a noncontrolling interest in another firm in a related industry

for strategic reasons.

Corporations invest in other companies for all of the following reasons except to

increase trading of the other companies' stock.

Each payment on a mortgage consists of

interest on the unpaid balance of the loan and reduction of loan principal.

Under the equity method, the Stock Investments account is increased when the

investee company reports net income.

When a company holds stock of several different corporations, the group of securities is identified as a(n)

investment portfolio.

The cost method of accounting for long-term investments in stock should be employed when the

investor's influence on the investee is insignificant.

Discount on Bonds Payable

is a contra account

Premium on Bonds Payable

is considered to be a reduction in the cost of borrowing.

Bond

issuance must be approved by the board of directors, terms are set forth in a legal document called a bond indenture, contractual interest rate is also referred to as the stated rate.

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

it is presumed that the investor has relatively little influence on the investee.

The market price (present value) of a bond is a function of all of the following except the

length of time until the bond is sold.

The present value of a bond is also known as its

market price

The renting of an apartment is an example of a(n)

operating lease.

The lessee must record a lease as a finance lease if the lease

term is 75% or more of the economic life of the leased property.

Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that

the contractual interest rate exceeds the market interest rate.

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

the extent of an investor's influence on the operating and financial affairs of the investee.

At the time of acquisition of a debt investment,

the historical cost principle applies.

The market interest rate

the rate investors demand for loaning funds

Both the straight-line method and the effective-interest method of amortization will always result in

the same amount of interest expense being recognized over the term of the bonds.

Debt to assets ratio is computed by dividing

total liabilities by total assets.

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

year or operating cycle, whichever is longer.