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1
．
A company acquired
30% of B Company
’
s voting
stock for $$200 000 on January 2,2004.
A
’
s 30% interest
in B gave A the ability to exercise significant
influence over B
’
s operating
and
financial
policies.
During
2004,
B
earned
$$
70
000
and
paid
dividends
of
$$50
000.
B
reported
earnings of $$150 000 for the six months
ending June 30, 2005, and $$200 000 for the year
ending
December
31,
July
1,
2005,
A
sold
half
of
its
stock
in
B
for
$$140
000
cash.
B
paid
dividends of $$60 000 on October 1,
2005.
Use the above information to
answer the following three questions:
①
Before income
taxes , what amount should A include in its 2004
income statement as a result
of the
investment ?
A. $$15 000
B. $$21
000
C. $$36 000
D. $$80 000
②
In
A
’
s
December
31,
2004
Balance
Sheet,
what
should
be
the
carrying
amount
of
this
investment?
A. $$200 000
B. $$206
000
C.
$$221 000
D. $$236 000
③
On its 2005
income statement ,what amount should A report as a
gain or loss from the sale of
half of
its investment?
A. $$22 000 gain
B.
$$23 500 gain
C. $$500 loss
D.
$$14 500 gain
2. On May 1,
2005, ABC purchased 30% of the stock of D
Corporation for $$600 000. During 2005,
D had net income of $$100 000. On
February 1 and on August 1, D paid $$30 000 in
dividends. On
December 31,2005, the
market price of the stock is $$630 000. what amount
should be shown in
the Investment in D
Corporation account on ABC
’
s
Balance Sheet dated December 31, 2005?
A. $$621 000
B.
$$611 000
C. $$629 000
D.
$$630 000
the
fair
value
of
investments
in
debt
securities
exceeds
their
carrying
amounts,
held-to-Maturity
securities
and
available-for-sale
securities
should
be
reported
at
the
end
of
the
year at _____
Held-to-maturity securities
available-for-sale
securities
A.
Fair value
Amortized Cost
B.
Amortized cost
Fair value
C.
Amortized cost
Amortized cost
D.
Fair value
Fair value
an
investor
uses
the
equity
method
to
account
for
investments
in
common
stock,
the
investment account will
be increased when the investor recognizes
A. a proportionate interest in the net
income of the investee.
B. a cash
dividend received from the investee.
C.
periodic amortization of the goodwill related to
the purchase.
D.
depreciation
related
to
the
excess
of
market
value
over
book
value
of
the
investee
’
s
depreciable assets at the date of
purchase by the investor.
5. When a
company holds between 20%and 50% of the
outstanding stock of an investee, which of
the following statements applies?
A. The investor should always use the
equity method to account for its investment.
B.
The
investor
should
use
the
equity
method
to
account
for
its
investment
unless
circumstances indicate that it is
unable to exercise
“
significant
influence
”
over the
investee.
C. The investor must use the
fair value method unless it can clearly
demonstrate the ability to
exercise
“
significant
influence
”
over the
investee.
D. The investor should always
use the fair value method to account for its
investment.
6. C Corporation owns 75%
of H Inc. During the current year, H Inc. reported
net income of $$150
000 and declared
dividends of $$40 000. How much would C Corporation
increase Investment in
Harrell Inc.
Stock for the current year?
A. $$0
B. $$82 500
C. $$30 000
D.
$$112 500
7. G
Corporation
’
s temporary
investments cost $$100 000 recorded as available-
for-sale securities
and have a market
value of $$120 000 at the end of the accounting
period. The difference between
the cost
and market value would be reported as a:
A. none.
B. $$20 000
unrealized gain-income.
C. $$20 000
realized gain.
D. $$20 000 unrealized
gain-equity.
8. If a firm purchases
$$100 000 of bonds of X company at 101 plus accrued
interest of $$2 000 and
pays
broker
’
s commissions of $$50,
the amount debited to Investment in X company
Bonds would
be :
A. $$100 000
B. $$103 000
C. $$101 050
D. $$103 050
1.
The rate of
interest actually earned by bondholders is called
the ______
A. coupon rate
B.
effective yield
C.
nominal rate
D. stated rate
2.
Bonds will
sell at a premium when the _____
A.
stated rate is
higher than the nominal rate.
B.
Stated rate is
higher than the market rate.
C.
Effective
yield is lower than the market rate.
D.
Effective
yield is lower than the stated rate.
3.
Which of the
following is an example of off-balance-sheet
financing?_____
A.
Consolidated subsidiary
B.
Capital lease.
C.
Zero-interest-
bearing note.
D.
Operating lease.
4.
Typical
liability accounts include _____
A.
accounts
payable, bank loan, wages payable, drawings
B.
accounts
payable, bank overdraft, wages payable, stationery
C.
accounts receivable, bank overdraft,
wages payable, unearned revenue
D.
accounts
payable, borrowing form the public, bank
overdraft, wages payable
5.
Which of the following usually is not a
current liability?
A.
Withheld income taxes
B.
Deposits
received form customers
C.
Deferred tax payable
D.
All of these
6.
After bonds
have been issued, their market value can be
expected to _____
A.
rise as any premium is amortized.
B.
Fall if
interest rates rise.
C.
Fall as any discount is amortized
D.
Rise if
interest rates rise
7.
When the interest payment dates of a
bond are May 1 and November 1, and a bond issue is
sold on June 1, the amount of cash
received by the issuer will be _____
A.
decreased by
accrued interest from June 1 to November 1.
B.
Decreased by
accrued interest from May 1 to June 1.
C.
Increased by
accrued interest from May 1 to June1.
D.
Increased by
accrued interest from June 1 to November 1
8.
A
manufacturer of household appliances may incur a
loss due to the discovery of a defect in
one of its products. The occurrence of
the loss is reasonably possible, and the resulting
costs
can be reasonably estimated. This
possible loss should be _____
Accrued
Disclosed in
Footnotes
A.
Yes
NO
B.
Yes
Yes
C.
No
Yes
D.
No
No
9.
Taxable income of a corporation________
A.
differs from
accounting income due to differences in
intraperiod allocation between the
two
methods of income determination.
B.
Differs
from
accounting
income
due
to
differences
in
interperiod
allocation
and
permanenet differences
between the two methods of income determination.
C.
Is based on
generally accepted accounting principles.
D.
Is reported on
the corporation
’
s income
statement.
10.
Taxable income of a corporation differs
from pretax financial income because of ___
Permanent
Temporary
Differences
Differences
A. NO
NO
B. NO
Yes
C. Yes
Yes
D. Yes
No
1.
If a corporation has outstanding 1 000
shares of $$9 cumulative preferred stock of $$100
par and
dividends
have
been
passed
for
the
preceding
three
years,
what
is
the
amount
of
preferred
dividends
that
must
be
declared
in
the
current
year
before
a
dividend
can
be
declared
on
common stock?_____
A. $$9 000
B. $$27 000
C. $$36 000
D.
$$45 000
2.
All of
the following are reasons for purchasing treasury
stock except to ____
A.
make a market for the stock.
B.
Increase the
number of shareholders.
C.
Increase the earnings per share and
return on equity
D.
Give employees as compensation
3.
Paid-in
capital for a corporation may arise from which of
the following sources?
A.
Issuing cumulative preferred stock.