ACCN Chapter 8

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

9

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

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

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.

amortized cost

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

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

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

changes in the fair value of the investment.

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:

debit Held-to-Maturity Investment in Bonds for $85 and credit Interest Revenue for $85.

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.

debit Investment in Available-for-Sale Securities for $52,700 and credit Cash for $52,700.

In present value calculations, the process of determining the present value of a single sum of money is called:

discounting

When an investor owns between 20% and 50% of the outstanding stock of another company, the ________ method is used to account for the stock investment.

equity

Long-term available-for-sale investments in stock are reported on the balance sheet at cost. t/f

false

Under the equity method, the Equity-method Investment account is debited when the:

investee reports net income.

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

investing cash inflow.

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 ________.

investor; investee

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

maturity value.

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

more than 50%

Goodwill occurs when a parent company:

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

Under the equity method of accounting for long-term investments in common stock, when a cash dividend is received from the investee company:

the investor's Equity-method Investment account is decreased.

Realized gains and losses from long-term available-for-sale investments arise from:

the sale of the investment.

Bond investments are initially recorded at cost. t/f

true

If the stated rate of interest on a bond exceeds the market rate of interest, the bond will sell at a premium. t/f

true