11) A company purchased a long-term available-for-sale security at a cost of $50,000. At year end, the fair value is $50,290. The adjusting entry requires a credit to Allowance to Adjust Investment in Available-for-Sale Securities to Market for $290.
12) On the purchase date, long-term available-for-sale equity securities are reported on the balance sheet at:
A) cost.
B) the lower-of-cost-or-market.
C) amortized cost.
D) fair value.
13) On each balance sheet after the purchase date, long-term available-for-sale investments in stock are reported at:
A) cost.
B) the lower-of-cost-or-market.
C) amortized cost.
D) fair value.
14) Purdue Company had the following transactions pertaining to stock investments:
a.February 1, Purchased 3,000 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 $6,000 on Hudson Company stock.
c.October 1, Sold 3,000 shares of Hudson stock for $54,000.
The journal entry to record the purchase of the Hudson stock is:
A) debit Equity-Method Investment for $51,000 and credit Cash for $51,000.
B) debit Investment in Available-for-Sale Securities for $51,000 and credit Cash for $51,000.
C) debit Cash for $51,000 and credit Common Stock for $51,000.
D) debit Common Stock for $51,000 and credit Cash for $51,000.
15) Poultry Company had the following transactions pertaining to stock investments:
a.February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share. Poultry 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 $0.50 per share on Hudson Company stock.
c.October 1, Sold 3,000 shares of Hudson stock for $54,000.
What journal entry is prepared on June 1?
A) debit Cash $1,500 and credit Interest Revenue $1,500.
B) debit Cash $3,000 and credit Long-Term Investment for $3,000.
C) debit Interest Receivable for $1,500 and credit Interest Revenue for $1,500.
D) debit Cash $1,500 and credit Dividend Revenue for $1,500.
16) Pansee Company had the following transactions pertaining to stock investments:
a.February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share. Pansee 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 $6,000 on Hudson Company stock.
c.June 30, End of accounting period. Fair value of Hudson Company stock is $50,000. The company uses an allowance account to adjust the investment.
What journal entry is prepared on June 30?
A) debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and credit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000
B) debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000
C) debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and credit Investment in Available-for-Sale Securities for $1,000
D) debit Investment in Available-for-Sale Securities for $1,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $1,000
17) If an investor owns less than 20% of the common stock of another company as a long-term investment:
A) the equity method of accounting should be used for the investment.
B) the investor has a controlling interest in the investee.
C) the investor usually has little or no influence on the investee.
D) the investor has significant influence on the investee.
18) For accounting purposes, the method used to account for long-term investments in common stock is determined by:
A) the size of the investor.
B) the size of the investor when compared to the size of the investee.
C) vote by the Board of Directors of the investor.
D) the investor's percentage ownership of the investee's stock.
19) If 15% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is:
A) the equity method.
B) the consolidation method.
C) the available-for-sale(fair value) method.
D) the lower of cost or market method.
20) The available-for-sale(fair value) method of accounting for long-term investments in stock should be used when the:
A) investor owns less than 20% of the outstanding stock of the investee.
B) investor has significant influence over the investee's operating decisions and policies.
C) investor has little or no influence on the investee.
D) A and C.