Chapter 16, Investments Video Solutions, Accounting Principles , Tenth Edition

Problem 1

Which of the following is not a primary reason why corporations invest in debt and equity securities?
a. They wish to gain control of a competitor.
b. They have excess cash.
c. They wish to move into a new line of business.
d. They are required to by law.

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Problem 2

Debt investments are initially recorded at: a. cost.
b. cost plus accrued interest.
c. fair value.
d. None of the above.

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04:10

Problem 3

Hanes Company selk debt investments costing $$\$ 26,000$$ for $$\$ 28,000$$, plus accrued interest that has been recorded. In journalizing the sale, credits are to:
2. Debt Investments and Loss on Sale of Debt Investments. b. Debt Investments, Gain on Sale of Debt Investments, and Bond Interest Receivable.
c. Stock Investments and Bond Interest Receivable. d. No correct answer is given.

Oluwadamilola Ameobi

Numerade Educator

Problem 4

Pryor Company receives net proceeds of $$\$ 42,000$$ on the sale of stock investments that cost $$\$ 39.500$$. This transaction will result in reporting in the income statement a:
a. loss of $$\$ 2,500$$ under "Other expenses and losses." b. loss of $$\$ 2.500$$ under "Operating expenses."
c. gain of $$\$ 2,500$$ under "Other revenues and gains."
d. gain of $$\$ 2,500$$ under "Operating revenues."

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Problem 5

The equity method of accounting for long-term investments in stock should be used when the investor has significant influence over an investee and owns:
a. between $20 \%$ and $50 \%$ of the investee's common stock. b. $20 \%$ or more of the investec's common stock.
c. more than $50 \%$ of the investee's common stock.
d. less than $20 \%$ of the investee's common stock.

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Problem 6

Assume that Horicon Corp acquired $$25 \%$$ of the common stock of Sheboygan Corp. on January 1, 2012, for $$\$ 300,000$$. During 2012, Sheboygan Corp, reported net income of $$\$ 160,000$$ and paid total dividends of $$\$ 60,000$$. If Horicon uses the equity method to account for its investment, the balance in the investment account on December 31, 2012. will be:
a. $$\$ 300000$$.
b. $$\$ 325,000$$.
c. $$\$ 400,000$$.
d. $$\$ 340,000$$.

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03:46

Problem 7

Using the information in question 6, what entry would Horicon make to record the receipt of the dividend from Sheboygan?
a. Debit Cash and credit Revenue from Stock Investments.
b. Debit Cash Dividends and credit Revenue from Stock Investments.
c. Debit Cash and credit Stock Investments.
d. Debat Cash and credit Dividend Revenue.

Akash M

Numerade Educator

Problem 8

You have a controlling interest if:
a. you own more than $20 \%$ of a company's stock.
b. you are the president of the company.
c. you use the equity method.
d. you own more than $50 \%$ of a company's stock.

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03:25

Problem 9

Which of the following statements is not true? Consolidated financial statements are useful to:
a. determine the profitability of specific subsidiaries.
b. determine the total profitability of enterprises under common control.
c. determine the breadth of a parent company's operations.
d. determine the full extent of total obligations of enterprises under common control.

Puneet Prajapati

Numerade Educator

Problem 10

At the end of the first year of operations, the total cost of the trading securities portfolio is $$\$ 120,000$$. Total fair value is $$\$ 115,000$$. The financial statements should show:
a. a reduction of an asset of $$\$ 5,000$$ and a realized loss of $$\$5.000$$.
b. a reduction of an asset of $$\$ 5.000$$ and an unrealized loss of $$\$ 5,000$$ in the stockholders' equity section.
c. a reduction of an asset of $$\$ 5,000$$ in the current assets section and an unrealized loss of $$\$ 5,000$$ in "Other expenses and losses."
d. a reduction of an asset of $$\$ 5,000$$ in the current assets section and a realized loss of $$\$ 5,000$$ in "Other expenses and losses."

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Problem 11

At December 31,2012, the fair value of available-for-sale securities is $$\$ 41,300$$ and the cost is $$\$ 39,800$$. At January 1,2012 , there was a credit balance of $$\$ 90$$ in the Market Adjustment-Available-for-Sale account. The required adjusting entry would be:
a. Debit Market Adjustment-Available-for-Sale for $$\$ 1,500$$ and credit Unrealized Gain or Loss-Equity for $$\$ 1,500$$.
b. Debit Market Adjustment-Available-for-Sale for $$\$ 600$$ and credit Unrealized Gain or Loss-Equity for $$\$ 600$$.
c. Debit Market Adjustment-Available-for-Sale for $$\$ 2,400$$ and credit Unrealized Gain or Loss-Equity for $$\$ 2,400$$.
d. Debit Unrealized Gain or Loss - Equity for $$\$ 2,400$$ and credit Market Adjustment-Available-for-Sale for $$\$ 2,400$$.

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Problem 12

In the balance sheet, a debit balance in Unrealized Gain or Lass-Equity is reported as a(n):
a. increase to stockholders' equity.
b. decrease to stockholders' equity.
c. loss in the income statement.
d. loss in the retained earnings statement.

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Problem 13

Short-term debt investments must be readily marketable and expected to be sold within:
a. 3 months from the date of purchase.
b. the next year or operating cycle, whichever is shorter.
c. the next year or operating cycle, whichever is longer.
d. the operating cycle.

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