Accounting: Chapter 15

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bepena09
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91202
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Accounting: Chapter 15
Updated:
2011-06-19 00:49:00
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accounting
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Chapter 15
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  1. When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

    True or False
    True
  2. Any difference between the fair market values of the securities and their cost is a realized gain or loss.

    True or False
    False
  3. On June 1, $400,000 of bonds were purchased as a long-term investment at 97.5 and $500 was paid as the brokerage commission. If the bonds bear interest at 12%, which is paid semiannually on January 1 and July 1, what is the total cost to be debited to the investment account?

    a. $390,000

    b. $400,500

    c. $400,000

    d. $390,500
    d. $390,500
  4. If the proceeds from the sale of bonds held as a long-term investment exceed the carrying amount of the bonds, a gain is realized.

    True or False
    True
  5. One potential advantage of financing corporations through the use of bonds rather than common stock is:

    a. the interest expense is deductible for tax purposes by the corporation

    b. the interest on bonds must be paid when due

    c. a higher earnings per share is guaranteed for existing common shareholders

    d. the corporation must pay the bonds at maturity
    a. the interest expense is deductible for tax purposes by the corporation
  6. A long-term investment in debt securities is carried at

    a. market

    b. lower of cost or market

    c. equity

    d. cost
    d. cost
  7. If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

    True or False
    True
  8. Blanton Corporation purchased 17% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record dividends from Worton Corporation?

    a. debit Cash; credit Investment in Worton Corporation

    b. debit Investment in Worton Corporation; credit Income of Worton Corporation

    c. debit Investment in Worton Corporation; credit Cash

    d. debit Cash; credit Dividend Revenue
    d. debit Cash; credit Dividend Revenue
  9. When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

    a. extraordinary gain or loss

    b. prior period adjustment

    c. paid-in capital addition

    d. gain or loss
    d. gain or loss
  10. The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

    True or False
    False
  11. Blanton Corporation purchased 17% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the purchase of Worton Corporation common stock?

    a. debit Investment in Worton Corporation; credit Income of Worton Corporation

    b. debit Cash; credit Dividend Revenue

    c. debit Cash; credit Investment in Worton Corporation

    d. debit Investment in Worton Corporation; credit Cash
    d. debit Investment in Worton Corporation; credit Cash
  12. Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

    a. Investment in Vallerio

    b. Dividend Revenue

    c. Retained Earnings

    d. Dividend Receivables
    a. Investment in Vallerio
  13. Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

    True or False
    False
  14. Low Company owns 40% of the voting stock of High Corporation and uses the equity method in recording this investment. High Corporation reported a $11,513 net loss. Which of the following would be included in Low Corporation's journal entry?

    a. Debit to the investment account for $11,513.00

    b. Credit to a loss account for $4,605.20

    c. Credit to the investment account for $4,605.20

    d. Debit to the investment account for $4,605.20
    c. Credit to the investment account for $4,605.20
  15. The amortization of discount on bonds purchased as a long-term investment increases the amount of the investment account.

    True or False
    True
  16. As with other assets, the cost of a bond investment includes all costs related to the purchase.

    True or False
    True
  17. The account Unrealized Loss on Temporary Investments in Stock should be included in the

    a. Income statement

    b. Balance sheet as an addition to Temporary Investments in Stock

    c. Balance sheet as a deduction in Stockholders' Equity

    d. Statement of Retained Earnings
    c. Balance sheet as a deduction in Stockholders' Equity
  18. Bonds payable would be listed at their carrying value on the balance sheet.

    True or False
    True
  19. The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

    True or False
    False
  20. An investor purchased 436 shares of common stock, $25.00 par, for $37.00. Subsequently, 120 shares were sold for $59.00 per share. What is the amount of gain or loss on the sale (round to two decimal points)?

    a. $14,824.00 gain

    b. $14,824.00 loss

    c. $2,640.00 gain

    d. $2,640.00 loss
    c. $2,640.00 gain

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