Exam 2: ch.8 quiz

A noncontrolling interest arises when: A) a parent company owns less than 100% of the stock of a subsidiary. B)a subsidiary company represents less than 20% of the value of the consolidated company. C)a subsidiary company is not included in the consolidated financial statements. D)a parent company excludes the subsidiary company from the consolidated financial statements.

A) a parent company owns less than 100% of the stock of a subsidiary.

Consolidated financial statements are prepared for the: A) balance sheet, income statement, statement of cash flows and statement of stockholders' equity. B)balance sheet, income statement and statement of cash flows only. C)statement of cash flows and statement of stockholders' equity only. D) balance sheet and income statement only.

A) balance sheet, income statement, statement of cash flows and statement of stockholders' equity.

Purdue Company had the following transactions pertaining to stock investments: a. February 1: Purchased 3100 shares of Hudson Company (10% ownership) at the market price of $17 per share. Purdue Company intends to keep the stock for more than one year and classifies the stock as available-for-sale. b. June 1: Received cash dividends of $7000 on Hudson Company stock. c. October 1: Sold 3100 shares of Hudson stock for $55,800. The journal entry to record the purchase of the Hudson stock is: A) Debit investment in AFSS for $52,700 and credit Cash for $52,700 B)debit Equity-Method Investment for $52,700 and credit Cash for $52,700. C)debit Cash for $52,700 and credit Common Stock for $52,700. D)debit Common Stock for $52,700 and credit Cash for $52,700.

A) debit investment in AFSS for $52700 and credit cash for $52700

In present value calculations, the process of determining the present value of a single sum of money is called: A) discounting. B)negotiating. C) allocating. D) pricing.

A) discounting

The cash received when selling an investment in another company is reported on the statement of cash flows as a(n): A) investing cash inflow B)investing cash outflow. C)financing cash inflow. D)financing cash outflow.

A) investing cash inflow

Under the equity method of accounting for long-term investments in common stock, when a cash dividend is received from the investee company: A) the investor's equity method investment account is decreased B) no entry is necessary C) the dividend revenue account is increased D) the investor's equity method investment account is increased

A) the investor's equity method investment account is decreased

On January 1, 2017, Corbin Company purchases $170,000, 6% bonds at a price of 99 and a maturity date of January 1, 2027. Corbin Company intends to hold the bonds until their maturity date. Interest is paid semiannually, on January 1 and July 1. Corbin Company has a calendar year end and uses the straight-line amortization method for discounts and premiums. The entry to amortize the bond investment on July 1, 2017 is: A)debit Held-to-Maturity Investment in Bonds for $85 and credit Interest Receivable for $85. B)debit Held-to-Maturity Investment in Bonds for $85 and credit Interest Revenue for $85. C)debit Held-to-Maturity Investment in Bonds for $170 and credit Interest Revenue for $170. D)debit Cash for $170 and credit Interest Revenue for $170.

B) debit held-to-maturity investment in Bonds for $85 and credit interest revenue for $85

When an inventory owns between 20% and 50% of the outstanding stock of another company, the ________ method is used to account for the stock investment. A) fair value B) equity C) AFSS D) consolidated

B) equity

Marathon Corporation owns 500 shares of Mini Company's common stock. Mini Company has 100,000 shares of common stock outstanding. Marathon Corporation is the ________ and Mini Company is the ________. A)controlling company; noncontrolling company B)investor; investee C)investee; investor D) parent company; subsidiary company

B) investor; investee

Goodwill occurs when a parent company: A)pays more to acquire a subsidiary company than the book value of the subsidiary's net assets. B)pays more to acquire a subsidiary company than the fair market value of the subsidiary's net assets C) pays less to acquire a subsidiary company than the fair market value of the subsidiary's net assets. D) pays less to acquire a subsidiary company than the book value of the subsidiary's net assets.

B) pays more to acquire a subsidiary company than the fair market value of the subsidiary's net assets

Realized gains and losses from the long term AFSS arise from: A) the purchase of an investment B) the sale of the investment C) investor's share of investee's net income or net loss D) changes in the fair value of the investment

B) the sale of the investment

Unrealized gains and losses from long-term available-for-sale investments arise from: A) the sale of the investment B) investor's share of investee's net income or net loss C) changes in the fair value of the investment D) the purchase of an investment

C) changes in the fair value of the investment

Under the equity method, the Equity-method Investment account is debited when the: A) investor receives a cash dividend B) investee reports net loss C) investee reports net income D) investment is sold

C) investee reports net income

Which of the following discount rates will produce the smallest present value of a single sum of money? A) 6% B) 4% C) 7% D) 9%

D) 9%

An investor purchased bonds and intends to hold them until the maturity date which is 10 years into the future. The bonds were purchased at a discount. One year after purchase, this Held-to-Maturity Investment in Bonds will be reported at ________ on the balance sheet. A) lower of cost or market B) historical cost C) fair value D) amortized cost

D) amortized cost

All of the following are necessary to compute the future value of a single amount EXCEPT the: A)interest rate. B) length of time between investment and future payment or receipt. C) amount of initial payment or receipt. D) maturity value.

D) maturity value

Consolidated financial statements are prepared when a company owns ________ of the common stock of another company. A) between 20 and 50% B) more than 90% C) 50% or more D) more than 50%

D) more than 50%

T/F: long-term available for sale investments in stock are reported on the balance sheet

False

T/F: bond investments are initially recorded at cost

True

T/F: if the stated rate of interest on a bond exceeds the market rate of interest, the bond will sell at a premium.

True