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Exam 19: Accounting for Investments

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Question 1

Multiple Choice

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A credit balance in the account Allowance to Adjust Long-Term Investments to Market is disclosed in the financial statements as a

A) regular account in the stockholders' equity section of the balance sheet.
B) contra account to Long-Term Investments.
C) note to the financial statements.
D) current asset.

E) All of the above
F) A) and D)

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Question 2

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When the equity method is used to account for an investment in stock,the investor will report its share of the investee's annual earnings as income in proportion to how much the investee distributes in the form of dividends.

A) True
B) False

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Question 3

Multiple Choice

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Short-term available-for-sale securities are valued on the balance sheet at

Held-to-maturity securities are always debt securities,and never equity securities.

The purchase and sale of debt and equity securities would appear in which section of the statement of cash flows?

When a company holds U.S.Treasury bills,it debits Interest Income and credits Short-Term Investments at the end of the accounting period (assuming it is prior to the T-bills' maturity).

Discuss the financial statement presentation of the account Allowance to Adjust Short-Term Investments to Market,distinguishing between the effect of a debit balance and the effect of a credit balance in the account.

Gains and losses on the sale of investments appear as adjustments within the financing activities section of the statement of cash flows.

Unrealized gains and losses on available-for-sale securities are reported on the balance sheet.

Detailed information about a company's investments is never disclosed in the notes to the financial statements.

Distinguish between the financial statement presentation of unrealized gains and losses related to trading securities and the financial statement presentation of unrealized gains and losses related to available-for-sale securities.

Singletary Corporation owns a 40 percent interest in the stock of Fleming Corporation.During 2014,Fleming pays $50,000 in dividends to Singletary and reports $214,000 in net income.Singletary Corporation's investment in Fleming will increase Singletary's income before income taxes by

A controlling investment is defined as owning what percent of the stock of another company?

Trading securities are always short-term investments.

Another term for short-term investments is marketable securities.

Trading securities are valued on the balance sheet at

When bonds are purchased between interest dates,the buyer must pay (in addition to the bonds' cost)the amount of interest that has accrued since the last interest payment date.

Which of the following statements is true about investments categorized as trading securities?

When the equity method is used to account for a long-term investment in the stock of another company,the carrying value of the investment is affected by

U.S.Treasury bills are considered equity securities.