1. Consider the following facts:

- Company A has available-for-sale equity investments. Which of the following statements is true regarding the accounting for these investments?

A. The realized gain on sale is determined by comparing the carrying value of the investment with its selling price.

B. None of these answers are correct

C. All equity security investments are classified as noncurrent.

D. Permanent declines in value are reported on the income statement.

E. Income is affected by temporary changes in market value.

2. Consider the following facts:

- Under GAAP, there are three categories of investments in debt and equity securities. - GAAP dictates different accounting methods for each of these categories. Under each of these accounting methods, the accounting is similar for all of the following accounting elements except:

A. recognition of realized gains and losses on sales

B .recognition of unrealized holding gains and losses

C. recognition of dividend and interest income

D. initial recording of cost

E. none of these choices are correct

3. Consider the following facts:

- A company has convertible bonds in its capital structure. - You need to calculate diluted earnings per share for the company. When computing diluted earnings per share in this scenario, you should do which of the following:

A. In the numerator of the calculation, you should multiply the interest expense on the bonds times the company's tax rate.

B. None of these answers are correct.

C. In the numerator of the calculation, you should multiply the interest expense on the bonds times the yield rate on the bonds minus the stated rate on the bonds.

D. In the numerator of the calculation, you should multiply the interest expense on the bonds times one minus the company's tax rate.

E. In the numerator of the calculation, you should multiply the interest expense on the bonds times the yield rate on the bonds.

4. Consider the following facts:

- Company A invests in Company B. - Company A uses the equity method to account for its investment in Company B. In this scenario, Company A should recognize its share of Company B's earnings when _________________.

A. Company B reports earnings on its income statement.

B. Company B pays a cash dividend.

C. None of these answers are correct

D. Company B declares a cash dividend.

E. Company A sells the investment.