Chapter 12: Investments

10.2.2 The fair value option The decision to elect the fair value option (FVO) A. Is irrevocable until the next election date, if any. B. May be applied to a portion of a financial instrument.

A.

10.4.3 Equity method When the equity method is used to account for investments in common stock, which of the following affects the investor's reported investment income? Goodwill amortization related to the purchase | Cash dividends from Investee A. No | No B. No | Yes

A.

10.1.1 HTM, Trading, and Available-for-sale debt securities. Investments in debt securities may be classified as I. Available-for-sale securities II. Held-to-maturity securities III. Trading securities A. I and II B. I, II, and III C. I only

B.

10.1.10 HTM, Trading, and Available-for-sale debt securities. In Yr 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available-for-sale debt securities. During Yr 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following? A. The unrealized loss should be credited to the investment account. B. The unrealized loss should be credited to the other comprehensive income account.

B.

10.1.3 HTM, Trading, and Available-for-sale debt securities. Investments classified as held-to-maturity securities should be measured at A. Amortized cost B. Fair Value C. lower of cost or market

B.

10.1.5 HTM, Trading, and Available-for-sale debt securities. When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year, given no election of the fair value option? HTM | Available-for-sale A. Amortized cost | Amortized cost B. Amortized cost | Fair value

B.

10.1.6 HTM, Trading, and Available-for-sale debt securities. A decline in the fair value of available-for-sale security below its amortized cost basis that is deemed to be other than temporary should A. Be accumulated in a valuation allowance. B. Be treated as a realized loss and included in the determination of net income for the period.

B.

10.1.8 HTM, Trading, and Available-for-sale debt securities. For available-for-sale debt securities included in noncurrent assets, which of the following amounts should be included in the period's net income? I. Unrealized holding losses during the period II. Realized gains during the period. III. Changes in fair value during the period. A. III only B. II only C. I only

B.

10.2.1 The fair value option Election of the fair value option (FVO) for financial assets A. Permits only for-profit entities to measure eligible items at fair value. B. Results in recognition of unrealized gains and losses in earnings of a business entity.

B.

10.3.2 Fair Value Method for Investments in Equity Securities An entity should report an investment in marketable equity securities that does not result in significant influence or control over the investee at A. Lower of cost or market, with holding gains and losses included in earnings. B. Fair value, with holding gains and losses included in earnings.

B.

10.1.12 HTM, Trading, and Available-for-sale debt securities. At year end, Rim Co. held several investments with the intent of selling them in the near term. The investments considered of $100,000; 8%, 5-year bonds, purchased for $92,000, and short-term notes purchased $35,000. At year end, the bonds were selling on the open market for $105,000, and the short-term notes had a market value of $50,000. What amount should Rim report as trading securities in its year-end balance sheet? A. $50,000 B. $155,000

B. Based in market quotes at year end, the bonds had a fair value of $105,000 and short-term notes had a fair value of $50,000. Total = $155,000

10.1.4 HTM, Trading, and Available-for-sale debt securities. 07/02 Yr 4, Wynn, Inc., purchased as a short-term investment a $1 million face-value Kean Co. 8% bond for $910,000 plus accrued interest to yield 10%. The bonds mature on January 1, Year 11, and pays interest annually on January 1. On December 31, Yr 4, the bonds had a fair value of $945,000. On February 13, Yr 5, Wynn sold the bonds for $920,000. In its December 31, Year 4, balance sheet, what amount should Wynn report for the bond if it is classified as available-for-sale security? A. $920,000 B. $945,000

B. Available-for-sale debt securities should be reported at fair value in the balance sheet.