ACC201 Chapter 12

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20 Questions - Developed by: Karli - Developed on: - 5.049 taken

Chapter 12 Quiz

  • 1
    Corporations purchase investments in debt or stock securities generally for one of two reasons
  • 2
    A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income
  • 3
    The accounting for short-term debt investments and for long-term debt investments is similar
  • 4
    When debt investments, are sold, the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds
  • 5
    Debt investments are investments in government and corporation bonds
  • 6
    In accordance with the cost principle, brokerage fees should be added to the cost of an investment
  • 7
    In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest
  • 8
    In accounting for stock investments of less than 20%, the equity method is used
  • 9
    Dividends received on stock investments of less than 20% should be credited to the Stock Investments account
  • 10
    If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee
  • 11
    The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock
  • 12
    Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually
  • 13
    Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account
  • 14
    Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.
  • 15
    Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies
  • 16
    Consolidated financial statements should be prepared only when a subsidiary company has a controlling interest in the parent company
  • 17
    The valuation of non-trading securities is similar to the procedures followed for trading securities, except that changes in fair value are not recognized in current income
  • 18
    An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity
  • 19
    For non-trading securities, the unrealized gain or loss account is carried forward to future periods
  • 20
    A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair value Adjustment account

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