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Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Accounting, 7e (Horngren) Appendix B: Investments and International Operations 1) Short-term investments are liquid and the investor intends to convert them to cash within one year. Answer:

True False Diff: 1 Page Ref: 1309 EOC Ref: EB-1

2) On the balance sheet assets are reported in order of liquidity, starting with long-term assets. Answer:

True

False Diff: 1 Page Ref: 1309 EOC Ref: EB-2

3) The equity method is used to account for trading investments. Answer:

True

False Diff: 1 Page Ref: 1310 EOC Ref: EB-1

4)


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Trading investments are reported on the balance sheet at current market value. Answer:

True False Diff: 1 Page Ref: 1310 EOC Ref: EB-1

5) Available-for-sale investments are investments that are to be sold in the very near future with the intent of generating profits on price changes. Answer:

True

False Diff: 1 Page Ref: 1310 EOC Ref: EB-2

6) The market-value method is used to account for available-for-sale investments. Answer:

True False Diff: 1 Page Ref: 1312 EOC Ref: EB-2

7) A realized gain on the sale of an available-for-sale investment is reported as an “Other gain or loss� on the income statement. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

True False Diff: 1 Page Ref: 1313 EOC Ref: EB-3

8) An investor with a stock holding of less than 20% can generally has significant influence over the investee's decisions and must use the equity method to account for the investment. Answer:

True

False Diff: 1 Page Ref: 1313 EOC Ref: EB-4

9) Under the equity method, the investor applies its percentage of ownership to record its share of the investee's net income. Answer:

True False Diff: 1 Page Ref: 1314 EOC Ref: EB-4


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10) Under the equity method, dividends received from the investee result in a credit the dividend revenue. Answer:

True

False Diff: 1 Page Ref: 1314 EOC Ref: EB-4

11) A participant in a joint venture accounts for its investment by the equity method. Answer:

True False Diff: 1 Page Ref: 1315 EOC Ref: EB-4

12) A controlling interest if ownership of more than 20% of an investee company's voting stock. Answer:

True

False Diff: 2 Page Ref: 1315 EOC Ref: EB-4

13) Consolidated statements combine the balance sheets, income statements and cash flow statements of the parent company and its majority-owned subsidiaries.


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Answer:

True False Diff: 2 Page Ref: 1316 EOC Ref: EB-4

14) Bond investments are recorded at cost for the full time that the investor holds the bonds. Answer:

True

False Diff: 1 Page Ref: 1317 EOC Ref: EB-6

15) When an investor purchases $10,000 of 6% bonds for $9,400, interest income for each six-month interest payment will be greater than the amount of cash received. Answer:

True False Diff: 2 Page Ref: 1317 EOC Ref: EB-6

16) At maturity, bondholders will receive the current market price from the company issuing the bonds. Answer:


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True

False Diff: 1 Page Ref: 1317 EOC Ref: EB-6

17) A foreign currency exchange rate is the measure of one currency against another currency. Answer:

True False Diff: 1 Page Ref: 1322 EOC Ref: EB-7

18) If the cost of a foreign currency increases, in relation to the U.S. dollar, from the time a corporation orders inventory and pays for the inventory using the foreign currency, the corporation will report a foreign currency gain. Answer:

True

False Diff: 2 Page Ref: 1323, 1324 EOC Ref: EB-7

19) A company engaging in foreign currency transactions must report the net amount of foreign currency gains and losses as a separate account in the stockholders' equity section. Answer:

True


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False Diff: 2 Page Ref: 1324 EOC Ref: EB-7

20) A strong currency is a currency that is rising relative to other nations' currencies. Answer:

True False Diff: 1 Page Ref: 1323 EOC Ref: EB-7

21) How are trading securities reported on the balance sheet? A)

Trading securities are reported at cost as current assets. B) Trading securities are reported at lower of cost or market as current assets. C)

Trading securities are reported at market value as either current or long-term investments. D)

Trading securities are reported at market value as current assets. Answer:

D Diff: 1 Page Ref: 1309 EOC Ref: EB-1

22)


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Which of the following are short-term investments held for short-term profit? A)

Trading securities are short-term investments held for short-term profit. B) Consolidated securities are short-term investments held for short-term profit. C)

Equity method securities are short-term investments held for short-term profit. D)

Held-to-maturity securities are short-term investments held for short-term profit. Answer:

A Diff: 1 Page Ref: 1309 EOC Ref: EB-1

23) Which of the following would be included in an entry to record dividends received from a trading investment? A)

A short-term investment would be debited. B) A short-term investment would be credited C)

A gain from a short-term investment would be credited. D)

Dividend revenue would be credited. Answer:

D Diff: 1 Page Ref: 1310 EOC Ref: EB-1


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24) Which of the following will be recorded when the market-value method has been used to report trading investments and a trading investment is sold? A)

A direct adjustment to retained earnings is recorded. B) A loss can be recorded, but a gain cannot be recorded. C)

Either a gain or a loss will be recorded. D)

A gain can be recorded, but a loss cannot be recorded. Answer:

C Diff: 1 Page Ref: 1311 EOC Ref: EB-1


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25) Which of the following is the definition of a trading investment? A)

A trading investment is an investment in which the company owns 20% to 50% of the investee company's voting stock and can significantly influence the decisions of the investee company. B) A trading investment is an investment that is to be sold in the very near future with the intent of generating a profit on a price change. C)

A trading investment is an investment in which the company owns more than 50% of the investee company's voting stock. D)

A trading investment is investment of less than 20% of the stock in a company that is not held to be sold in the very near future with the intent of generating a profit on a price change. Answer:

B Diff: 1 Page Ref: 1309 EOC Ref: EB-1

26) Which of the following is the definition of a “highly liquid” investment? A)

The definition of a “highly liquid” investment is an investment that is easily converted to cash. B) The definition of a “highly liquid” investment is a bond that can be converted into stock. C)

The definition of a “highly liquid” investment is a government issued security. D)

None of the above descriptions is the definition of a “highly liquid” investment. Answer:


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A Diff: 1 Page Ref: 1309 EOC Ref: EB-1

27) Where would a loss on the sale of a trading investment appear? A)

A loss on the sale of a trading investment would appear on the income statement as part of other gains and losses. B) A loss on the sale of a trading investment would appear on the balance sheet as a current liability. C)

A loss on the sale of a trading investment would appear on the balance sheet as a contra-equity account. D)

A loss on the sale of a trading investment would appear on the income statement as an operating expense. Answer:

A

Diff: 1

Page Ref: 1309, 1310 EOC Ref: EB-1

28) A trading investment acquired during the year for $10,000 has a year-end market value of $11,300. Which of the following will be included in the year-end adjusting entry? A)

The entry will include a debit of $1,300 to short-term investment. B) The entry will include a debit of $11,300 to short-term investment. C)

The entry will include a credit of $1,300 to short-term investment. D)

The entry will include a credit of $11,300 to loss on trading investment. Answer:


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A Diff: 1 Page Ref: 1311 EOC Ref: EB-1


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29) A trading investment acquired during 20X5 for $12,000 is sold in 20X6 for $20,500. After the adjusting entry in 20X5, the trading investment had a carrying value of $14,900. Which of the following will be reported by the investor in 2008? A)

The investor will report a gain of $5,600 on a trading investment. B) The investor will report a gain of $8,500 on the sale of an investment. C)

The investor will report a gain of $8,500 on a trading investment. D)

The investor will report a gain of $5,600 on the sale of an investment. Answer:

D Diff: 1 Page Ref: 1311 EOC Ref: EB-1

30) A trading investment acquired during 2008 for $14,000 is sold in 2009 for $12,500. After the adjusting entry in 2008, the trading investment had a carrying value of $14,900. Which of the following will be reported by the investor in 2009? A)

The investor will report a loss of $1,500 on a trading investment. B) The investor will report a loss of $2,400 on a trading investment. C)

The investor will report a loss of $2,400 on the sale of an investment. D)

The investor will report a loss of $1,500 on the sale of an investment. Answer:

C Diff: 1


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Page Ref: 1311 EOC Ref: EB-1

31) A short-term investment, properly classified as a trading investment, cost $10,000 on June 17, 2008. It is worth $13,500 on December 31, 2008. What is necessary to account for the increase in value? A)

The increase in value is accounted for as dividend income of $3,500 on the income statement. B) The increase in value is accounted for as a direct increase to retained earnings and is not reported on the income statement. C)

The increase in value is accounted for as $3,500 of unrealized gain on the income statement. D)

The increase in value is accounted for as an investment of $10,000 on the balance sheet. Answer:

C Diff: 1 Page Ref: 1311 EOC Ref: EB-1

32) A short-term investment, properly classified as a trading investment, cost $23,000 on March 28, 2008. It is worth $$20,000 on December 31, 2008. Which of the following will be included in the year-end adjusting entry? A)

The entry will include a credit of $3,000 to the loss on trading investment account. B) The entry will include a debit of $3,000 to the gain on trading investment account. C)

The entry will include a credit of $3,000 to the short-term investment account. D)

The entry will include a debit of $3,000 to the short-term investment account. Answer:


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C Diff: 1 Page Ref: 1311 EOC Ref: EB-1

33) Which of the following can be reported when the market-value method is used to report the sale of a trading investment? A)

Either a gain or loss can be reported. B) A loss but not a gain can be reported. C)

A gain but not a loss can be reported. D)

Neither a gain nor loss can be reported, but retained earnings is directly adjusted. Answer:

A Diff: 1 Page Ref: 1311 EOC Ref: EB-1

34) Which of the following is the definition of an available-for-sale investment? A)

An available-for-sale investment is an investment that is to be sold in the very near future with the intent of generating a profit on a price change. B) An available-for-sale in an investment in which the company owns more than 50% of the investee company's voting stock. C)

An available-for-sale is investment of less than 20% of the stock in a company that is not held to be sold in the very near future with the intent of generating a profit on a price change. D)


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An available-for-sale is an investment in which the company owns 20% to 50% of the investee company's voting stock and can significantly influence the decisions of the investee company. Answer:

C Diff: 1 Page Ref: 1309 EOC Ref: EB-2

35) What method is used to report available-for-sale investments on the balance sheet? A)

Available-for-sale investments are reported at current market value on the balance sheet. B) Available-for-sale investments are reported at higher of cost or market on the balance sheet. C)

Available-for-sale investments are reported at lower of cost or market on the balance sheet. D)

Available-for-sale investments are reported at historical cost on the balance sheet. Answer:

A Diff: 1 Page Ref: 1312 EOC Ref: EB-2

36) How is the gain or loss computed on the sale of an available-for-sale investment? A)

The gain or loss is the difference between the current market value on the previous balance sheet date and the historical cost of the investment. B) The gain or loss is the difference between the current market value on the sale date and the current market value on the previous balance sheet date. C)


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The gain or loss is the difference between the current market value on the sale date and the historical cost of the investment. D)

None of the above. Answer:

C Diff: 1 Page Ref: 1313 EOC Ref: EB-2

37) Which of the following is required by GAAP for available-for-sale investments? A)

GAAP requires that the unrealized gain or loss from adjusting the investment's cost to market value be reported on the income statement. B) GAAP requires that the long-term available-for-sale investment account be adjusted to its market value on the balance sheet date. C)

GAAP requires that the long-term available-for-sale investment account be reported at cost and an allowance to adjust the investment to market account be established. D)

None of the above. Answer:

C Diff: 1 Page Ref: 1313 EOC Ref: EB-2


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38) Which of the following the purpose of the allowance to adjust investment to market? A)

The allowance to adjust investment to market is a companion account that is used with available-for-sale investments and that appears on the income statement. B) The allowance to adjust investment to market is a companion account that is used with trading investments and that appears on the income statement. C)

The allowance to adjust investment to market is a companion account that is used with trading investments that appears on the balance sheet. D)

The allowance to adjust investment to market is a companion account that is used with available-for-sale investments that appears on the balance sheet. Answer:

D Diff: 1 Page Ref: 1312 EOC Ref: EB-2

39) Which of the following is TRUE of the unrealized gain on available-for-sale investment account? A)

The unrealized gain on available-for-sale investment account is a balance sheet account and is reported as a current asset. B) The unrealized gain on available-for-sale investment account is an income statement account and is reported as part of net sales revenue. C)

The unrealized gain on available-for-sale investment account is an income statement account and is reported as part of other gains and losses. D)

The unrealized gain on available-for-sale investment account is a balance sheet account and is reported as part of stockholders' equity.


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Answer: D Diff: 1 Page Ref: 1313 EOC Ref: EB-2

40) On September 15, 2008, a corporation purchased investments classified as available-for-sale for $100,000. The proper adjusting entry on December 31, 2008 included a debit of $2,500 to the allowance to adjust investment to market. Which of the following would be included in the adjusting entry on December 31, 2009 when the market value of the investment is $101,200? A)

The entry would include a credit of $1,300 to the allowance to adjust investment to market. B) The entry would include a debit of $1,200 to the allowance to adjust investment to market. C)

The entry would include a credit of $1,200 to the allowance to adjust investment to market. D)

The entry would include a debit of $1,300 to the allowance to adjust investment to market. Answer:

A Diff: 1 Page Ref: 1312, 1313 EOC Ref: EB-2

41) On September 15, 2008, a corporation purchased investments classified as available-for-sale for $90,000. The proper adjusting entry on December 31, 2008 included a credit of $3,200 to the allowance to adjust investment to market. Which of the following would be included in the adjusting entry on December 31, 2009 when the market value of the investment is $96,400? A)

The entry would include a debit of $9,600 to the allowance to adjust investment to market. B) The entry would include a debit of $6,400 to the allowance to adjust investment to market. C)


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The entry would include a credit of $6,400 to the allowance to adjust investment to market. D) The entry would include a credit of $9,600 to the allowance to adjust investment to market. Answer:

A Diff: 1 Page Ref: 1312, 1313 EOC Ref: EB-2


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42) The allowance to adjust investment to market has a debit balance of $500 prior to adjustment. Available-for-sale investments with a cost of $10,000 have a current market value of $11,000 on the balance sheet date. Which of the following would be included in the adjusting entry? A)

The adjusting entry would include a credit of $500 to allowance to adjust investment to market. B) The adjusting entry would include a debit of $500 to allowance to adjust investment to market. C)

The adjusting entry would include a credit of $1,000 to allowance to adjust investment to market. D)

The adjusting entry would include a debit of $500 to unrealized loss on available-for-sale investment. Answer:

B Diff: 1 Page Ref: 1312, 1313 EOC Ref: EB-2

43) The allowance to adjust investment to market has a debit balance of $350 prior to adjustment. Available-for-sale investments with a cost of $19,000 have a current market value of $19,800 on the balance sheet date. Which of the following would be included in the adjusting entry? A)

The adjusting entry would include a credit of $800 to allowance to adjust investment to market. B) The adjusting entry would include a credit of $800 to unrealized loss on available-for-sale investment. C)

The adjusting entry would include a debit of $1,150 to allowance to adjust investment to market. D)

The adjusting entry would include a debit of $800 to allowance to adjust investment to market. Answer:


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C Diff: 1 Page Ref: 1312, 1313 EOC Ref: EB-2

44) The adjusting entry for available-for-sale investments contains a credit of $500 to unrealized gain on available-for-sale investments. As a result of this entry, which of the following will be reflected on the income statement? A)

An addition to net sale of $500 related to this entry will be reflected on the income statement. B) Other income of $500 related to this entry will be reflected on the income statement. C)

An extraordinary gain of $500 related to this entry will be reflected on the income statement. D)

Nothing related to this entry will be reflected on the income statement. Answer:

D

Diff: 1

Page Ref: 1313 EOC Ref: EB-2

45) For which of the following investments must a company use the equity method of accounting? A)

A company must use the equity method of accounting for an investment of less than 20% of the stock in a company that is not held to be sold in the very near future with the intent of generating a profit on a price change. B) A company must use the equity method of accounting for an investment in which the company owns more than 50% of the investee company's voting stock. C)

A company must use the equity method of accounting for an investment that is to be sold in the very near future with the intent of generating a profit on a price change. D)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

A company must use the equity method of accounting for an investment in which the company owns 20% to 50% of the investee company's voting stock and can significantly influence the decisions of the investee company. Answer:

D Diff: 1 Page Ref: 1313 EOC Ref: EB-4


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46) At which of the following are investments initially recorded when the equity method is required? A)

Either A or C, depending on how the investor classifies the investment. B) Investments accounted for using the equity method are initially recorded at the fair market value of the investee multiplied by the percentage ownership acquired. C)

Investments accounted for using the equity method are initially recorded at cost. D)

Investments accounted for using the equity method are initially recorded at the total of the investee's equity accounts multiplied by the percentage ownership acquired. Answer:

C Diff: 1 Page Ref: 1313 EOC Ref: EB-4

47) Which of the following adjusting entries must be recorded when the equity method is used to account for long-term investments in stock? A)

The equity method requires an adjusting entry only if the current market value on the balance sheet date is higher than cost. B) The equity method requires an adjusting entry only if the current market value on the balance sheet date is lower than cost. C)

The equity method requires an adjusting entry to adjust the investment to market value. D)

None of the above is true. Answer:


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D Diff: 1 Page Ref: 1314 EOC Ref: EB-4

48) Which of the following are the ownership percentages that generally indicate that an investor has significant influence over the investee and must use the equity method? A)

Ownership percentages of 20% to 50% of the investee stock indicate that the investor has significant influence over the investee and must use the equity method. B) Ownership percentages of over 50% of the investee stock indicate that the investor has significant influence over the investee and must use the equity method. C)

Ownership percentages of 20% to 40% of the investee stock indicate that the investor has significant influence over the investee and must use the equity method. D)

Ownership percentages of 30% to 50% of the investee stock indicate that the investor has significant influence over the investee and must use the equity method. Answer:

A Diff: 1 Page Ref: 1313 EOC Ref: EB-4

49) Which of the following will be recorded by the investor when the equity method is required? A)

The investor increases the long-term equity-method Investment for investee dividends and reduces the long-term equitymethod Investment to record investee income. B) The investor reduces the long-term equity-method Investment to record dividends and income of the investee. C)


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The investor increases the long-term equity-method Investment to record dividends and income of the investee. D)

The investor reduces the long-term equity-method Investment for investee dividends and increases the long-term equitymethod Investment to record investee income. Answer: D Diff: 1 Page Ref: 1314 EOC Ref: EB-4


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50) On January 1, 2009, Hugo Company acquired 25% of the common stock of Lyle Company. On December 31, 2009, Lyle Company reported net income of $100,000. Which of the following would be included in Hugo Company's entry to reflect this income? A)

The entry would include a debit of $100,000 to cash. B) The entry would include a debit of $25,000 to cash. C)

The entry would include a debit of $100,000 to Long-Term Equity-Method Investment. D)

The entry would include a debit of $25,000 to Long-Term Equity-Method Investment. Answer:

D Diff: 1 Page Ref: 1314 EOC Ref: EB-4

51) An investor company owns 30% of the stock of and has significant influence over an investee company. Which of the following will be true if the investee reports net income of $100,000 for the year? A)

The investor company's long-term equity-method Investment will be increased by $30,000. B) The investor company will record dividend income of $30,000. C)

No entry will be made until the investor company receives a cash dividend. D)

The investor company's long-term equity-method Investment will be decreased by $30,000. Answer:

A


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Diff: 1 Page Ref: 1314 EOC Ref: EB-4

52) An investor company owns 30% of the 30,000 of common stock of and has significant influence over an investee company. Which of the following will be true if the investee pays a $.60 per share dividend to its stockholders? A)

The investor company's long-term equity-method Investment will be debited for $18,000. B) The investor company's long-term equity-method Investment will be debited for $5,400. C)

The investor company's cash account will be debited for $5,400. D)

The investor company's cash account will be debited for $18,000. Answer:

C Diff: 1 Page Ref: 1314 EOC Ref: EB-4

53) An investor company owns 30% of the stock of and has significant influence over an investee company. Which of the following will be true if the investee reports a net loss of $100,000 for the year? A)

No entry will be made until the investor company receives a cash dividend. B) The investor company's long-term equity-method Investment will be increased by $30,000. C)

The investor company will record dividend income of $30,000. D)

The investor company's long-term equity-method Investment will be decreased by $30,000.


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Answer:

D Diff: 1 Page Ref: 1314 EOC Ref: EB-4

54) An investor company owns 40% of the common stock of and has significant influence over an investee company. Which of the following will be true if the investee pays a $50,000 dividend to its stockholders? A)

The investor company's long-term equity-method Investment will be debited for $20,000. B) The investor company's equity-method investment revenue will be credited for $20,000. C)

The investor company's long-term equity-method Investment will be credited for $20,000. D)

The investor company's dividend revenue account will be credited for $20,000. Answer:

B Diff: 1 Page Ref: 1314 EOC Ref: EB-4


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55) An investor company owns 30% of the common stock of and has significant influence over an investee company. Which of the following will be the net effect if the investee reports $250,000 of income and pays $100,000 of dividends for the current year? A)

The investor company's long-term equity-method Investment will be increased by $150,000. B) The investor company's long-term equity-method Investment will be reduced by $45,000. C)

The investor company's long-term equity-method Investment will be increased by $45,000. D)

The investor company's long-term equity-method Investment will be reduced by $150,000. Answer:

C Diff: 1 Page Ref: 1314 EOC Ref: EB-4

56) An investor company owns 35% of the common stock of and has significant influence over an investee company. The investment was made on January 2, 2008 at a cost of $450,000. From the date of the investment until December 31, 2008, the investee reported $100,000 of income and paid $40,000 in dividends. What will be the balance of the investor company's long-term equity-method Investment after all appropriate entries are made? A)

The investor company's long-term equity-method Investment will be $510,000. B) The investor company's long-term equity-method Investment will be $450,000. C)

The investor company's long-term equity-method Investment will be $429,000. D)

The investor company's long-term equity-method Investment will be $471,000. Answer:


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D Diff: 1 Page Ref: 1314 EOC Ref: EB-4

57) Which of the following investments must a company include in its consolidated financial statements? A)

A company must include in its consolidated financial statements an investment in which the company owns 20% to 50% of the investee company's voting stock and can significantly influence the decisions of the investee company. B) A company must include in its consolidated financial statements an investment of less than 20% of the stock in a company that is not held to be sold in the very near future with the intent of generating a profit on a price change. C)

A company must include in its consolidated financial statements an investment in which the company owns more than 50% of the investee company's voting stock. D)

A company must include in its consolidated financial statements an investment that is to be sold in the very near future with the intent of generating a profit on a price change. Answer:

C Diff: 1 Page Ref: 1315 EOC Ref: EB-4

58) Which of the following is considered a controlling interest? A)

A controlling interest is any ownership that results in significant influence over the investee. B) A controlling interest is the ownership of more than 50% of the investee's voting stock. C)

A controlling interest is the ownership of 20% to 50% of the investee's voting stock. D)


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A controlling interest is the ownership of less than 20% of the investee's voting stock. Answer:

B Diff: 1 Page Ref: 1315 EOC Ref: EB-4


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59) Which of the following terms is used to describe a company that is controlled by another corporation? A)

A subsidiary is a company that is controlled by another corporation. B) A joint venture is a company that is controlled by another corporation. C)

A trading investment is a company that is controlled by another corporation. D)

A trust is a company that is controlled by another corporation. Answer:

A Diff: 1 Page Ref: 1315 EOC Ref: EB-4

60) Which of the following financial statements are combined to present consolidated statements of a parent and its controlled subsidiaries? A)

The balance sheets of the parent and its subsidiaries are combined. B) The cash-flow statements of the parent and its subsidiaries are combined. C)

The income statements of the parent and its subsidiaries are combined. D)

All of the above statements of the parent and its subsidiaries are combined. Answer:

D Diff: 1


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Page Ref: 1316 EOC Ref: EB-4

61) Which of the following terms is used to describe a subsidiary company's equity that is held by stockholders other than the parent company? A)

A minority interest is a subsidiary company's equity that is held by stockholders other than the parent company. B) A joint venture is a subsidiary company's equity that is held by stockholders other than the parent company. C)

A small equity interest is a subsidiary company's equity that is held by stockholders other than the parent company. D)

A controlling interest is a subsidiary company's equity that is held by stockholders other than the parent company. Answer:

A Diff: 1 Page Ref: 1317 EOC Ref: EB-4

62) How are assets presented on a consolidated balance sheet? A)

Assets of the parent and the subsidiary are combined. B) Assets of the parent and the subsidiary may be either combined or presented separately at the option of the parent. C)

Assets of the parent and the subsidiary are presented separately. D)

None of the above is correct. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

A Diff: 1 Page Ref: 1316 EOC Ref: EB-4

63) Which of the following is consolidated net income for a parent company and its wholly owned subsidiary? A)

Consolidated net income is the parent company's net income plus dividends received from the subsidiary. B) Consolidated net income is the parent company's net income plus the subsidiary's net income. C)

Consolidated net income is the parent company's net income plus any joint venture's net income. D)

Consolidated net income is the parent company's net income plus any minority interest's net income. Answer:

B Diff: 1 Page Ref: 1316 EOC Ref: EB-4

64) In which of the following situations would a parent company record goodwill in the consolidation process? A)

When the parent acquired the subsidiary, the parent's acquisition cost was greater than the sum of the market value of the subsidiary's net assets. B) When the parent acquired the subsidiary, the parent's acquisition cost was less than the sum of the market value of the subsidiary's net assets. C)

The subsidiary has sold assets that were owned when the parent acquired the subsidiary and the assets were sold at a gain. D)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

The subsidiary has increased in value since the parent's acquisition. Answer:

A Diff: 1 Page Ref: 1316 EOC Ref: EB-4

65) Which of the following accounts will appear on the consolidated balance sheet when a parent company owns less that 100% of the stock of a subsidiary? A)

An account titled “Minority Interest” will appear on the consolidated balance sheet. B) An account titled “Equity in Minority Interest Net Income” will appear on the consolidated balance sheet. C)

An account titled “Joint Venture” will appear on the consolidated balance sheet. D)

An account titled “Minority Interest Net Income” will appear on the consolidated balance sheet. Answer:

A Diff: 1 Page Ref: 1317 EOC Ref: EB-4

66) Which of the following are considered held-to-maturity investments? A)

Other debt securities that the investor expects to hold until their maturity date are held-to-maturity investments. B) Bonds that the investor expects to hold until their maturity date are held-to-maturity investments. C)

Notes that the investor expects to hold until their maturity date are held-to-maturity investments.


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

D)

All of the above are held-to-maturity investments. Answer:

D Diff: 1 Page Ref: 1317 EOC Ref: EB-6

67) Which of the following is TRUE of the dollar amount to be recorded due to a bond transaction? A)

The issuing corporation records only the dollar amount of the maturity value of the bonds. B) The dollar amount of a bond transaction is the same for both the issuing corporation and the bondholder. C)

The bondholder records only the dollar amount of the maturity value of the bonds. D)

Both A and B are true Answer:

B Diff: 1 Page Ref: 1317 EOC Ref: EB-6

68) Which of the following is the dollar amount recorded when bonds are purchased? A)

The amortized cost is recorded. B) The maturity value of the bonds is recorded. C)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

The cost of the bonds is recorded. D)

All of the above terms are the same amount. Answer:

C Diff: 1 Page Ref: 1317 EOC Ref: EB-6


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

69) Which of the following is NOT affected by the amortization of a discount or premium on a bond investment? A)

The carrying value of the bonds is not affected by the amortization of a discount or premium on a bond investment. B) Interest revenue is not affected by the amortization of a discount or premium on a bond investment. C)

The amount of cash received when interest payments are made is not affected by the amortization of a discount or premium on a bond investment. D)

Retained earnings of the investor are not affected by the amortization of a discount or premium on a bond investment. Answer:

C Diff: 1 Page Ref: 1317 EOC Ref: EB-6

70) How are held-to-maturity investments reported on the balance sheet? A)

Held-to-maturity investments are reported at historical cost on the balance sheet. B) Held-to-maturity investments are reported at lower of cost or market on the balance sheet. C)

Held-to-maturity investments are reported at amortized cost on the balance sheet. D)

Held-to-maturity investments are reported at current market value on the balance sheet. Answer:

C Diff: 1


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Page Ref: 1318 EOC Ref: EB-6

71) A company issues $100,000 of bonds payable for $95,000. Which of the following will occur as interest payments are made every 6 months? A)

Premium on bonds payable in increase as interest payments are made every 6 months. B) Discount on bonds payable will increase as interest payments are made every 6 months. C)

The carrying amount of the bonds will increase as interest payments are made every 6 months. D)

The carrying amount of the bonds will decrease as interest payments are made every 6 months. Answer:

C Diff: 1 Page Ref: 1317 EOC Ref: EB-6

72) A company issues $100,000 of bonds payable for $105,000. Which of the following will occur as interest payments are made every 6 months? A)

Discount on bonds payable will increase as interest payments are made every 6 months. B) The carrying amount of the bonds will decrease as interest payments are made every 6 months. C)

Premium on bonds payable in increase as interest payments are made every 6 months. D)

The carrying amount of the bonds will increase as interest payments are made every 6 months. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

B Diff: 1 Page Ref: 1317 EOC Ref: EB-6

73) An investor purchased $100,000 of 8% bonds. The straight-line method is used to amortize bond premium and discount. Which of the following is TRUE? A)

Interest revenue will decrease over the life of the bonds if the bonds were acquired at a discount. B) Interest revenue will increase over the life of the bonds if the bonds were acquired at a premium. C)

Interest revenue will decrease over the life of the bonds if the bonds were acquired at a premium. D)

Interest revenue will remain constant of the life of the bonds if the bonds were acquired at a premium. Answer:

D Diff: 1 Page Ref: 1317 EOC Ref: EB-6


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

74) Which of the following is included in the entry to amortize a premium paid for a long-term investment in bonds? A)

Interest revenue is credited and long-term investment in bonds is debited. B) Interest revenue is debited and long-term investment in bonds is credited. C)

Interest expense is credited and long-term investment in bonds is debited. D)

Interest expense is debited and long-term investment in bonds is credited. Answer:

A Diff: 2 Page Ref: 1317 EOC Ref: EB-6

75) Which of the following is included in the entry to amortize a discount paid for a long-term investment in bonds? A)

Interest revenue is credited and long-term investment in bonds is debited. B) Interest revenue is debited and long-term investment in bonds is credited. C)

Interest expense is debited and long-term investment in bonds is credited. D)

Interest expense is credited and long-term investment in bonds is debited. Answer:

A Diff: 2 Page Ref: 1317


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren EOC Ref: EB-6

76) An investor purchased $20,000 of 8%, 5-year bonds on March 1, 2008 at 90. The investor has a year-end of December 31 and expects to hold the bonds to maturity. Interest dates are March 1 and September 1. If the premium or discount is amortized using the straight-line method, how much interest revenue is recorded on September 1, 2008? A)

Interest revenue of $1,000 is recorded on September 1, 2008. B) Interest revenue of $1,200 is recorded on September 1, 2008. C)

Interest revenue of $600 is recorded on September 1, 2008. D)

Interest revenue of $800 is recorded on September 1, 2008. Answer:

A

Diff: 2

Page Ref: 1317 EOC Ref: EB-6

77) An investor purchased $5,000 of 5%, 3-year bonds on April 1, 2008 for $5,120. The investor has a year-end of December 31 and expects to hold the bonds to maturity. Interest dates are April 1 and October 1. Proper adjusting entries were made on December 31m 2008. If the premium or discount is amortized using the straight-line method, how much interest revenue is recorded on April 1, 2009? A)

Interest revenue of $72.50 is recorded on April 1, 2009. B) Interest revenue of $62.50 is recorded on April 1, 2009. C)

Interest revenue of $125.00 is recorded on April 1, 2009. D)

Interest revenue of $52.50 is recorded on April 1, 2009.


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Answer:

A Diff: 2 Page Ref: 1317 EOC Ref: EB-6


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

78) An investor purchased $180,000 of 10%, 5-year bonds on July 1, 2004 at 103. The bonds will mature on July 1, 2009. The investor has a year-end of December 31 and expects to hold the bonds to maturity. Interest dates are June 30 and December 31 and. Which of the following is the debit to long-term investment in bonds on July 1, 2004? A)

The debit to long-term investment in bonds is $190,962. B) The debit to long-term investment in bonds is $180,000. C)

The debit to long-term investment in bonds is $185,400. D)

None of the above is correct. Answer:

C Diff: 2 Page Ref: 1317 EOC Ref: EB-6

79) An investor purchased $180,000 of 10%, 5-year bonds on July 1, 2004 at 103. The bonds will mature on July 1, 2009. The investor has a year-end of December 31 and expects to hold the bonds to maturity. Interest dates are June 30 and December 31 and. The premium or discount is amortized using the straight-line method. Which of the following is true if the six-month amortization entry is not made on December 31, 2004? A)

Interest revenue is understated by 560. B) Long-term investment in bonds is understated by $540. C)

Interest revenue is overstated by $540. D)

Both A and B are correct. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

C Diff: 2 Page Ref: 1317 EOC Ref: EB-6

80) Why is an understanding of international accounting important for U.S. accountants and accounting students? A)

It is common for U.S. companies to do a large part of their business abroad. B) The Financial Accounting Standards Board has adopted all of the standards issued by the International Accounting Standards Board. C)

GAAP requires that U.S. companies that do business abroad restate their financials in the foreign currency. D)

All of the above are reasons for U.S. accountants and accounting students to understand international accounting. Answer:

A Diff: 2 Page Ref: 1322 EOC Ref: EB-7

81) A U.S. company sells inventory on account to a company operating in a country that uses euros. Which of the following is true when the U.S. company records the sale of the inventory? A)

If the transaction documents are stated in U.S. dollars, the transaction is recorded for the number of U.S. dollars stated in the transaction documents. B) If the transaction documents are stated in euros, the euros are translated into U.S. dollars using the exchange rate and the transaction is recorded for the number of translated U.S. dollars. C)

If the transaction documents are stated in euros, the transaction is recorded for the number of euros stated in the transaction documents.


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

D)

Both A and B are correct. Answer:

D Diff: 2 Page Ref: 1323 EOC Ref: EB-7


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

82) A U.S. company sells inventory on account to a company operating in a country that uses euros. Which of the following is true when the U.S. company collects the money for the sale of the inventory? A)

If the transaction documents are stated in U.S. dollars, the U.S. company will receive dollars and no foreign currency gain or loss will be recorded. B) If the transaction documents are stated in euros, the company will receive euros and must trade these euros for U.S. dollars, resulting in a foreign currency gain or loss. C)

Both A and B are correct. D)

Neither A nor B are correct. Answer:

C Diff: 2 Page Ref: 1323 EOC Ref: EB-7

83) A U.S. company buys inventory on account from a company operating in a country that uses euros. Which of the following is true when the U.S. company pays the money for the purchase of the inventory? A)

If the transaction documents are stated in euros, the company will pay with euros and must acquire these euros for U.S. dollars, resulting in a foreign currency gain or loss. B) If the transaction documents are stated in U.S. dollars, the U.S. company will pay in dollars and no foreign currency gain or loss will be recorded. C)

Both A and B are correct. D)

Neither A nor B are correct. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

C Diff: 2 Page Ref: 1323 EOC Ref: EB-7

84) Which of the following is a weak currency? A)

A weak currency is a currency is the currency of a country with low inflation. B) A weak currency is a currency that is rising relative to other nations' currencies. C)

A weak currency is a currency that is falling relative to other nations' currencies. D)

None of the above are a weak currency. Answer:

C

Diff: 2

Page Ref: 1323 EOC Ref: EB-7

85) A U.S. company sells merchandise on account to a British firm for 100,000 British pounds. The exchange rates for the British pound were as follows: Date of sale $1.54 Date of collection 1.53 Date merchandise resold be British firm 1.52 Which of the following must the U.S. company report on the date of the sale for this transaction? A)

A $2,000 foreign-currency gain must be reported on the date of the sale. B) A $1,000 foreign-currency loss must be reported on the date of the sale. C)

A $3,000 foreign-currency loss must be reported on the date of the sale. D)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Neither a foreign-currency gain nor loss is reported on the date of the sale. Answer:

D Diff: 2 Page Ref: 1323 EOC Ref: EB-7


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

86) A U.S. company sells merchandise on account to a British firm for 100,000 British pounds. The sales document indicates that the British firm must pay the account in American dollars. The exchange rates for the British pound were as follows: Date of sale Date of collection Date merchandise resold be British firm

$1.54 1.53 1.52

Which of the following must be reported by the U.S. company for this transaction when the British firm makes payment for the inventory? A)

A $3,000 foreign-currency loss must be reported. B) A $2,000 foreign-currency gain must be reported. C)

A $1,000 foreign-currency loss must be reported. D)

Neither a foreign-currency gain nor loss is reported when the payment is received. Answer:

D Diff: 2 Page Ref: 1323 EOC Ref: EB-7

87) A U.S. company sells merchandise on account to a British firm for 100,000 British pounds. The sales document indicates that the British firm must pay the account in British pounds. The exchange rates for the British pound were as follows: Date of sale Date of collection Date merchandise resold be British firm

$1.54 1.53 1.52

Which of the following must be reported by the U.S. company for this transaction when the British firm makes payment for the inventory? A)

A $3,000 foreign-currency loss must be reported. B)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

A $2,000 foreign-currency gain must be reported. C)

A $1,000 foreign-currency loss must be reported. D)

Neither a foreign-currency gain nor loss is reported when the payment is received. Answer:

C Diff: 2 Page Ref: 1323 EOC Ref: EB-7

88) A U.S. company purchases merchandise on account from a British firm for 200,000 British pounds. The sales document indicates that the U.S. company must pay the account in British pounds. The exchange rates for the British pound were as follows: Date of purchase Date of delivery Date of cash payment

$1.56 1.53 1.57

Which of the following must be reported by the U.S. company for this transaction when the inventory is purchased? A)

A $2,000 foreign-currency loss must be reported. B) A $3,000 foreign-currency gain must be reported. C)

A $1,000 foreign-currency gain must be reported. D)

Neither a foreign-currency gain nor loss is reported when the inventory is purchased. Answer:

D Diff: 2 Page Ref: 1323 EOC Ref: EB-7


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

89) A U.S. company purchases merchandise on account from a British firm for 200,000 British pounds. The sales document indicates that the U.S. company must pay the account in British pounds. The exchange rates for the British pound were as follows: Date of purchase Date of delivery Date of cash payment

$1.56 1.53 1.57

Which of the following must be reported by the U.S. company for this transaction the inventory is purchased? A)

A $2,000 foreign-currency loss must be reported. B) A $1,000 foreign-currency gain must be reported. C)

A $3,000 foreign-currency gain must be reported. D)

Neither a foreign-currency gain nor loss is reported when the British firm makes payment for the inventory. Answer:

A Diff: 2 Page Ref: 1323 EOC Ref: EB-7

90) A U.S. company purchases merchandise on account from a British firm for 200,000 British pounds. The sales document indicates that the U.S. company must pay the account in U.S. dollars. The exchange rates for the British pound were as follows: Date of purchase Date of delivery Date of cash payment

$1.56 1.53 1.57

Which of the following must be reported by the U.S. company for this transaction the inventory is purchased? A)

A $2,000 foreign-currency loss must be reported. B)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

A $1,000 foreign-currency gain must be reported. C)

A $3,000 foreign-currency gain must be reported. D)

Neither a foreign-currency gain nor loss is reported when the British firm makes payment for the inventory. Answer:

D Diff: 2 Page Ref: 1323 EOC Ref: EB-7

91) __________ are liquid and the investor intends to convert them to cash within one year. Answer:

Short-term investments or Marketable securities Diff: 1 Page Ref: 1309 EOC Ref: EB-1

92) __________ are to be sold in the very near future with the intent of generating a profit on a quick sale. Answer:

Trading securities Diff: 1 Page Ref: 1309 EOC Ref: EB-1

93) __________ are all less-than-20% investments other than trading investments. Answer:

Available-for-sale securities Diff: 1 Page Ref: 1309 EOC Ref: EB-2


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

94) The __________ must be used if the investor can significantly influence the investee's decisions. Answer:

Equity method Diff: 1 Page Ref: 1313 EOC Ref: EB-4

95) Significant influence is assumed when an investor owns between _____% and _____% of the investee's voting stock. Answer:

20, 40 Diff: 1 Page Ref: 1313 EOC Ref: EB-4

96) A __________ is the ownership of more than 50% of an invest company's voting stock. Answer:

controlling interest Diff: 1 Page Ref: 1315 EOC Ref: EB-4

97) __________ are bonds, notes and other debt securities that the investor acquires and expects to hold until their maturity date. Answer:

Held-to-maturity investments Diff: 1 Page Ref: 1317 EOC Ref: EB-5

98) A long-term investment in bonds is reported at __________ on the balance sheet.


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Answer:

amortized cost Diff: 2 Page Ref: 1317 EOC Ref: EB-5

99) A __________ is a currency that is rising relative to other nations' currencies. Answer:

strong currency Diff: 1 Page Ref: 1323 EOC Ref: EB-7

100) The net amount of gains and losses on fluctuations in the value of foreign currency are reported in the __________ section of the income statement. Answer:

Other gains (losses) Diff: 1 Page Ref: 1324 EOC Ref: EB-7


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

101) Identify the four categories of investment in stock of another corporation and explain when the methods must be used and how the methods are used. Answer:

1. Trading investments — The market-value method is used to account for trading investments. Trading investments are reported on the balance sheet at current market value. This requires a year-end adjustment to current market value. The gain or loss is reported on the income statement. 2. Available-for-sale investments — The market-value method is used to account for available-for-sale investments. Available-for-sale investments are reported on the balance sheet at current market value. This requires a year-end adjustment to current market value. The adjustment is achieved on the balance sheet with a contra-asset account — Allowance to adjust investment of market. The gain or loss is reported on the balance sheet as part of stockholders' equity — Unrealized gain or loss. 3. Equity-method investments — An investor with a stock holding between 20% and 50% of the investee's voting stock can significantly influence the investee's decisions and must use the equity method to account for its investment. The initial investment is recorded at cost. The investor recognizes is share of the investee's income or loss as equitymethod investment revenue or loss and adjusts the investment account for this amount. The investment account is reduced by any dividends received from the investee. 4. Controlling interest — An investor with a stock holding greater than 50% must use consolidation accounting. Consolidation accounting requires that the financial statements of a parent corporation and all of its controlled subsidiaries be combined into consolidated financial statements, as if the parent and its subsidiaries were the same entity. Diff: 2 Page Ref: 1309, 1313, 1315 EOC Ref: EB-1-7

102) Prepare journal entries for the following transactions assuming the investment is a trading investment. Jan. 15

Jun. 30 Dec. 31

Date Jan. 15 Jun. 30 Dec. 31

Purchased 300 of the 2,000 shares of Ross Corporation common stock, paying $74 per share. The investor intends to sell the investment for no more than a year. Received a cash dividend of $1.50 per share on the Ross Corporation common stock. Made any necessary adjustment to Ross Corporation common stock when its value was $24,980. Answer:

General Journal Accounts Short-term investment Cash Cash Dividend Revenue Short-term investment Gain on trading investment Diff: 2

Debit 22,200

Credit 22,200

450 450 2,780 2,780


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Page Ref: 1310, 1311 EOC Ref: EB-1


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

103) Prepare journal entries for the following transactions assuming the investment is a trading investment. 2008 Sept. 1 Dec. 31 2009 Dec. 1 Dec. 31 2010 Feb. 22

Purchased 18,500 of the 100,000 shares of Martin Corporation common stock, paying $18,500. The investor intends to sell the investment for no more than a year. Made any necessary adjustment to the Martin Corporation common stock when its value was $15,750. Received a cash dividend of $590 on the Martin Corporation common stock. Made any necessary adjustment to the Martin Corporation common stock when its value was $17,000. Sold the Martin Corporation stock for $18,750. Answer:

General Journal Date 2008 Sept. 1 Dec. 31 2009 Dec. 1 Dec. 31 2010 Feb. 2

Accounts Short-term investment Cash Loss on trading investment Short-term investment Cash Dividend revenue Short-term investment Gain on trading investment Cash Short-term investment ain on sale of investment

Diff: 2

Page Ref: 1310, 1311 EOC Ref: EB-1

Debit

Credit

18,500 18,500 2,750 2,750 590 590 1,250 1,250 18,750 17,000 1,750


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

104) Prepare journal entries for the following transactions assuming the investment is a trading investment. 2008 Feb. 15

Nov. 30 Dec. 31 2009 Jan. 27

Purchased 1,500 of the 10,000 shares of Taylor Corporation common stock, paying $15.50 per share. The investor intends to sell the investment for no more than a year. Received a cash dividend of $1.00 per share on the Taylor Corporation common stock. Made any necessary adjustment to Taylor Corporation common stock when its value was $16.25. Sold 750 shares Taylor Corporation for $16.50 per share. Answer:

General Journal Date 2008 Feb. 15 Nov. 30 Dec. 31 2009 Jan. 27

Accounts

Debit

Short-term investment Cash Cash Dividend Revenue Short-term investment Gain on trading investment

23,250

Cash Short-term investment Gain on sale of investment

12,375

Credit

23,250 1,500 1,500 1,125 1,125

12,188 187

Diff: 3

Page Ref: 1310, 1311 EOC Ref: EB-1

105) Prepare journal entries for the following transactions assuming the investment is an available-for-sale investment. Jan. 15

Jun. 30 Dec. 31

Purchased 300 of the 2,000 shares of Ross Corporation common stock, paying $74 per share. The investor intends to hold the investment for more than a year. Received a cash dividend of $1.50 per share on the Ross Corporation common stock. Sold the Ross Corporation common stock for $24,980. Answer:

General Journal Date Jan. 15

Accounts Long-term available-for-sale investment

Debit 22,200

Credit


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Jun. 30 Dec. 31

Cash Cash 450 Dividend Revenue Cash 24,980 Long-term available-for-sale investment Gain on available-for-sale investment Diff: 2

Page Ref:

EOC Ref:

22,200 450 22,200 2,780


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

106) Prepare journal entries for the following transactions assuming the investment is an available-for-sale investment. 2008 Sept. 1 Dec. 31 2009 Dec. 1 Dec. 31 2010 Feb. 22

Purchased 18,500 of the 100,000 shares of Martin Corporation common stock, paying $18,500. The investor intends to hold the investment for more than a year. Made any necessary adjustment to the Martin Corporation common stock when its value was $15,750. Received a cash dividend of $590 on the Martin Corporation common stock. Made any necessary adjustment to the Martin Corporation common stock when its value was $17,000. Sold the Martin Corporation stock for $18,750. Answer:

General Journal Date Accounts 2008 Sept. 1 Long-term available-for-sale investment Cash Dec. 31 Unrealized loss on investment Allowance to adjust investment to market 2009 Dec. 1 Cash Dividend revenue Dec. 31 Allowance to adjust investment to market Unrealized loss on investment 2010 Feb. 2 Cash Unrealized loss on investment Allowance to adjust investment to market Long-term available-for-sale investment Gain on sale of investment Diff: 4

Page Ref: 1312, 1313 EOC Ref: EB-2, EB-3

Debit

Credit

18,500 18,500 2,750 2,750 590 590 1,250 1,250 18,750 1,500 1,500 18,500 250


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

107) Prepare journal entries for the following transactions assuming the investment is an available-for-sale investment. 2008 Feb. 15

Nov. 30 Dec. 31

Purchased 1,500 of the 10,000 shares of Taylor Corporation common stock, paying $15.50 per share. The investor intends to hold the investment for more than a year. Received a cash dividend of $1.00 per share on the Taylor Corporation common stock. Made any necessary adjustment to the Taylor Corporation common stock when its value was $16.25. Answer:

General Journal Date 2008 Feb. 15 Nov. 30 Dec. 31

Accounts Long-term available-for-sale investment Cash Cash Dividend Revenue Allowance to adjust investment to market Unrealized gain on investment

Diff: 3

Debit

Credit

23,250 23,250 1,500 1,500 1,125 1,125

Page Ref: 1312, 1313 EOC Ref: EB-2, EB-3

108) Explain how to account for an equity-method investment and the reasons for these methods of accounting. Answer:

When the equity method is used to account for a stock investment, dividends received are recorded as a reduction to the investment account and the investor's share of income is reported by the investee is treated as an increase in the investment account. The equity method is used to account for stock investments where 20%-50% of the voting common stock of the investee is owned. In these cases, it is assumed that the investor exerts significant influence of the investee. The investor/investee relationship is, therefore, very close. The equity method of accounting reflects this close relationship by increasing or decreasing the investment account to reflect comparable increases or decreases in the investee's stockholders' equity account. Dividends reduce the investee's stockholders' equity, so they also reduce the investor's investment account. Reported net income or loss of the investee increases or decreases both the investee's stockholders' equity and the investment account. Diff: 2

Page Ref: 1313, 1314 EOC Ref: EB-4


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

109) Prepare journal entries for the following transactions assuming the investment is an equity-method investment. Jan. 15

Jun. 30 Dec. 31

Purchased 300 of the 1,000 shares of Ross Corporation common stock, paying $74 per share. The investor can significantly influence the investee's decisions and intends to hold the investment for more than a year. Received a cash dividend of $1.50 per share on the Ross Corporation common stock. Ross Corporation reported $100,000 of net income for the year. Made any necessary adjustment to Ross Corporation. Answer:

General Journal Date Jan. 15 Jun. 30 Dec. 31

Accounts Long-term equity-method investment Cash Cash Long-term equity-method investment Long-term equity-method investment Equity-method investment revenue

Diff: 2

Page Ref: 1313, 1314 EOC Ref: EB-4

Debit 22,200

Credit 22,200

450 450 30,000 30,000


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110) Prepare journal entries for the following transactions assuming the investment is an equity-method investment. 2008 Sept. 1

Dec. 31 2009 Dec. 1 Dec. 31 2010 Feb. 22

Purchased 18,500 of the 50,000 shares of Martin Corporation common stock, paying $18,500. The investor can significantly influence the investee's decisions and intends to hold the investment for more than a year. Martin Corporation reported $20,000 of net income for the year. Made any necessary adjustment to Martin Corporation. Received a cash dividend of $590 on the Martin Corporation common stock. Martin Corporation reported $10,000 of net income for the year. Made any necessary adjustment to Martin Corporation Sold the Martin Corporation stock for $18,750. Answer:

General Journal Date 2008 Sept. 1 Dec. 31 2009 Dec. 1 Dec. 31 2010 Feb. 2

Accounts Long-term equity-method investment Cash Long-term equity-method investment Equity-method investment revenue Cash Long-term equity-method investment Long-term equity-method investment Equity-method investment revenue Cash Loss on sale of investment Long-term equity-method investment

Diff: 2

Page Ref: 1313-1315 EOC Ref: EB-4

Debit

Credit

18,500 18,500 7,400 7,400 590 590 3,700 3,700 18,750 9,260 29,010


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111) Prepare journal entries for the following transactions assuming the investment is an equity-method investment. 2008 Feb. 15

Nov. 30 Dec. 31 2009 Jan. 27

Purchased 1,500 of the 5,000 shares of Taylor Corporation common stock, paying $15.50 per share. The investor can significantly influence the investee's decisions and intends to hold the investment for more than a year. Received a cash dividend of $1.00 per share on the Taylor Corporation common stock. Taylor Corporation reported $10,000 of net loss for the year. Made any necessary adjustment to Taylor Corporation. Sold the entire investment in Taylor Corporation for $16.50 per share. Answer:

General Journal Date 2008 Feb. 15 Nov. 30 Dec. 31 2009 Jan. 27

Accounts

Debit

Long-term equity-method investment Cash Cash Long-term equity-method investment Equity-method investment loss Long-term equity-method investment

23,250

Cash Long-term equity-method investment Gain on sale of investment

24,750

Diff: 3

Credit

23,250 1,500 1,500 3,000 3,000

8,750 16,000

Page Ref: 1313-1315 EOC Ref: EB-1

112) How does an investor account for a held-to-maturity investment in bonds? Answer:

The investor records the investment at cost and will amortize the difference between cost and the face value of the bonds over their life. If the bonds were purchased at a discount, the adjusting entry to amortize the discount will increase the investment account and increase interest revenue. If the bonds were purchased at a premium, the adjusting entry to amortize the premium will decrease the investment account and decrease interest revenue. Diff: 1

Page Ref: 1317, 1318 EOC Ref: EB-5


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113) On October 1, 2008, a company paid $52,400 to purchase $50,000 of 8%, 5-year bonds. Interest on the bonds is paid September 30 and March 31 of each year. The company has a December 31 year-end, plans to hold the bonds until maturity and amortizes the premium or discount on bonds using the straight-line method each interest payment date. Prepare all journal entries for 2008 dealing with the investment in bonds. Answer:

Date Oct. 1 Dec. 31 Dec. 31

General Journal Accounts Long-term investment in bonds Cash Interest receivable Interest revenue Interest revenue Long-term investment in bonds

Debit 52,400

Credit 52,400

1,000 1,000 120 120

Diff: 2

Page Ref: 1317, 1318 EOC Ref: EB-5

114) On October 1, 2008, a company paid $47,600 to purchase $50,000 of 8%, 5-year bonds. Interest on the bonds is paid September 30 and March 31 of each year. The company has a December 31 year-end, plans to hold the bonds until maturity and amortizes the premium or discount on bonds using the straight-line method each interest payment date. Prepare all journal entries for 2008 and 2009 dealing with the investment in bonds. Answer:

General Journal Date 2008 Oct. 1 Dec. 31 Dec. 31 2009 Mar. 31

Mar. 31 Sep. 30 Sep. 30

Accounts

Debit

Long-term investment in bonds Cash Interest receivable Interest revenue Long-term investment in bonds Interest revenue

47,600

Cash Interest receivable Interest revenue Long-term investment in bonds Interest revenue Cash Interest revenue Long-term investment in bonds Interest revenue

2,000

Credit

47,600 1,000 1,000 120 120

1,000 1,000 120 120 2,000 2,000 240 240


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren Page Ref: 1317, 1318 EOC Ref: EB-5


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115) A U.S. company engaged in the following transactions during 20X8. Apr. 1 May 5 Jun. 10 Jul. 30

Purchased merchandise from a Mexican supplier at a cost of 100,000 pesos. The exchange rate on that date was $0.32 per peso. Paid for the merchandise. The exchange rate on this date was $0.31 per peso. Sold goods to a Canadian buyer at the selling price of $83,000 Canadian dollars. The exchange rate on this date was $0.67 U.S. dollars for each Canadian dollar. Received payment from the Canadian buyer for the goods sold on June 10. The exchange rate on this date was $0.65 U.S. dollars for each Canadian dollar.

a. Prepare the journal entries necessary to record each of the above transactions. b. During the periods of time covered by the transactions, was the U.S. dollar getting stronger or weaker relative to the Mexican peso and the Canadian dollar? Answer:

Date Apr. 1 May 5

Jun. 10 Jul. 30

General Journal Accounts Inventory Accounts payable Accounts payable Foreign-currency gain Cash Accounts receivable Sales revenue Cash Foreign-currency loss Accounts receivable

Debit 32,000

32,000 32,000 1,000 31,000 55,610 55,610 53,950 1,660

Diff: 1 Page Ref: 1322, 1323 EOC Ref: EB-7

116) The market-value method is used to account for trading investments. Answer:

True False Diff: 1 Page Ref: 1310 EOC Ref: EB-1

117)

Credit

155,610


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The equity method is used to account for long-term available-for-sale investments. Answer:

True

False Diff: 1 Page Ref: 1312 EOC Ref: EB-2

118) The equity method is used to account for investments in which the investor has 20% to 50% of the investee's voting stock and can significantly influence the decisions of the investee. Answer:

True False Diff: 1 Page Ref: 1313 EOC Ref: EB-4

119) Held-to-maturity investments are investments in bonds, notes and other debt securities that will mature within a year. Answer:

True False Diff: 1 Page Ref: 1317 EOC Ref: EB-5

120) A weak currency is a currency that is rising relative to other nations' currencies. Answer:


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

True

False Diff: 1 Page Ref: 1323 EOC Ref: EB-7

121) A trading investment acquired during the year for $25,000 has a year-end market value of $23,200. Which of the following will be included in the year-end adjusting entry? A)

The entry will include a debit of $1,800 to gain on trading investment. B) The entry will include a credit of $1,800 to loss on trading investment. C)

The entry will include a credit of $1,800 to short-term investment. D)

The entry will include a debit of $1,800 to short-term investment. Answer:

C Diff: 1 Page Ref: 1311 EOC Ref: EB-1

122) On September 15, 2008, a corporation purchased investments classified as available-for-sale for $90,000. The proper adjusting entry on December 31, 2008 included a credit of $3,200 to the allowance to adjust investment to market. Which of the following would be included in the adjusting entry on December 31, 2009 when the market value of the investment is $87,900? A)

The entry would include a debit of $1,100 to the allowance to adjust investment to market. B) The entry would include a credit of $2,100 to the allowance to adjust investment to market. C)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

The entry would include a debit of $2,100 to the allowance to adjust investment to market. D)

The entry would include a credit of $1,100 to the allowance to adjust investment to market. Answer:

A Diff: 1 Page Ref: 1312 EOC Ref: EB-2

123) The equity method of accounting for a stock investment should generally be used when the investor owns 20$ to 50% of the investee's stock. Which of the following is the required condition represented by this level of ownership? A)

This level of ownership usually gives the investor significant influence over the investee. B) This level of ownership usually indicates a plan to acquire a controlling interest. C)

This level of ownership gives the investor a controlling interest in the investee. D)

This level of ownership requires the investor to notify the government of any plans to acquire a controlling interest in the investee. Answer:

A Diff: 1 Page Ref: 1313 EOC Ref: EB-4

124) An investor purchased $20,000 of 8%, 5-year bonds on March 1, 2008 at 110. The investor has a year-end of December 31 and expects to hold the bonds to maturity. Interest dates are March 1 and September 1. If the premium or discount is amortized using the straight-line method, how much interest revenue is recorded on September 1, 2008? A)


Full file at http://testbank360.eu/test-bank-accounting-7th-edition-horngren

Interest revenue of $800 is recorded on September 1, 2008. B) Interest revenue of $1,000 is recorded on September 1, 2008. C)

Interest revenue of $600 is recorded on September 1, 2008. D)

Interest revenue of $1,200 is recorded on September 1, 2008. Answer:

C Diff: 2 Page Ref: 1317 EOC Ref: EB-6


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125) A U.S. company sold merchandise on account to a British company for 80,000 British pounds. Each pound was worth $1.50. Which of the following is the entry to record this sale by the U.S. company? A)

Accounts receivable Sales revenue B)

120,000

Accounts receivable Sales revenue Foreign-currency gain C)

120,000 80,000

Accounts receivable Foreign-currency loss Sales revenue D)

80,000

Accounts receivable Sales revenue Answer:

80,000

A Diff: 2 Page Ref: 1322 EOC Ref: EB-7

120,000

40,000

40,000 120,000

80,000


Test bank accounting 7th edition horngren