1. Which of the following categories/methods would be used to account for an investment, where the intent of the investment was primarily for short-term profits?
a. Trading securities
b. Available for sale securities
c. Held to maturity securities
d. Equity method
2. Ace Corporation has a long-term investment in the common stock of another entity. This investment is accounted for as an available-for-sale security. A journal entry to record a $10,000 decline in market value below cost would necessarily involve:
a. a debit to Unrealized Gain/Loss -- OCI
b. a credit to Unrealized Gain/Loss -- OCI
c. a debit to Available for Sale Securities.
d. a debit to Investment Revenue.
3. Investment in Bonds should be disclosed on the balance sheet.
a. At their face value minus any unamortized premiums.
b. At their face value plus any unamortized premiums.
c. At their maturity value.
d. At their face value.
4. When the contract interest rate for a bond exceeds the effective interest rate of the bond, then:
a. The price of the bond will be equal to the future cash flow associated with the bond.
b. The bond will be issued at a premium.
c. The bond will be issued at a discount.
d. The face value of the bond will fluctuate over its life.
5. On June 1, Pennell Corporation purchased $100,000 of 9%, 5-year bonds. The bonds are dated June 1, 20X1. The bonds were issued at 96, and pay interest on December 1 and June 1. The entry to record the investment in bonds is:
a. Investment in Bonds 100,000
Cash 100,000
b. Investment in Bonds 96,000
Cash 96,000
c. Investment in Bonds 104,000
Cash 104,000
d. Investment in Bonds 96,000
Interest Income 4,000
Cash 100,000
6. On April 1, 20X1, Collinge Corporation purchased $100,000 of 7%, 5-year bonds dated April 1, 20X1, at 101. Interest is paid on March 31 and September 30. Assuming use of the straight-line amortization method, the proper amount of income to record on September 30, 20X1 is:
a. $7,000
b. $3,400
c. $3,500
d. $3,600
7. On January 1, 20X2, Miller Corporation purchased $100,000 of 5%, 10-year bonds dated January 1, 20X2, at 98. Interest is paid on June 30 and December 31 of each year. Assuming use of the straight-line amortization method, the proper amount to report for Investment in Bonds at December 31, 20X3 is:
a. $98,000
b. $98,400
c. $100,000
d. $101,600
8. Investor Corporation owns 30% of Investee Corporation. Investee had net earnings of $100,000 during the year and paid dividends of $30,000. Investor's Investment in Investee account contained a $70,000 balance at the beginning of the year. What would be the correct balance of this account at the end of the year?
a. $70,000
b. $91,000
c. $100,000
d. $140,000
9. Investor Corporation owns 30% of Investee Corporation. Investee had net earnings of $100,000 during the year and paid dividends of $30,000. Investor's Investment in Investee account contained a $70,000 balance at the beginning of the year. How much dividend income will Investor record?
a. $0
b. $9,000
c. $30,000
d. $39,000
10. Mega Corporation owns 100% of Wolf Corporation's stock. Mega paid $1,000,000 for its investment. At the time of the initial investment, Wolf had total stockholders' equity of $600,000. All of Wolf's assets and liabilities were carried at amounts that equaled their fair value, except for a building that was undervalued by $100,000. How much goodwill would you anticipate finding in the consolidated balance sheet?
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