1 Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee.

True

False

2 The Unrealized Holding Gain/LossIncome account for equity securities is reported as a part of other comprehensive income.

True

False

3 Under the fair value method, the investor reports as revenue its share of the net income reported by the investee.

True

False

4 A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation.

True

False

5 Changes in the fair value of a company's available-for-sale debt instruments are included as part of earnings in any given period.

True

False

6 Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are

securities where a company has holdings of more than 20%.

securities where a company has holdings of between 20% and 50%.

securities where a company has holdings of more than 50%.

securities where a company has holdings of less than 20%.

7 An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair Value Method Equity Method

(a) A reduction of the investment Income

(b) Income Income

(c) Income A reduction of the investment

(d)A reduction of the investment A reduction of the investment

8 If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the

divesture method.

fair value method.

equity method.

cost method.

9 Instrument Corporation has the following investment which was held throughout 20182019:

Fair Value

Equity Investment Cost 900000 12/31/18 1200000 12/31/19 1140000

What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2019 related to its investment?

$300,000 gain.

$60,000 loss.

$240,000 gain.

$60,000 gain.

10 At December 31, 2018, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2018?

(a) Unrealized Holding Gain or Loss-Equity

28,000

Fair Value Adjustment

28,000

(b) Unrealized Holding Gain or Loss-Equity

20,000

Fair Value Adjustment

20,000

(c) Fair Value Adjustment

28,000

Unrealized Holding Gain or Loss-Equity

28,000

(d) Fair Value Adjustment

20,000

Unrealized Holding Gain or Loss-Equity

20,000

(11) Kramer Company's equity securities portfolio which is appropriately included in current assets is as follows:

December 31, 2018

Cost Fair value Unrealized Gain(loss)

Catlett Corp $260000 $215000 $(45000)

Lyman Inc $245000 265000 20000

505000 480000 (25000)

(a) $0

(b) $45000 loss

(c) $25000 loss

(d) $20000 gain

Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2018 income statement if 2018 is Kramer's first year of operation?

(12) On its December 31, 2017, balance sheet, Trump Company reported its investment in equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2018, the fair value of the securities was $585,000. What should Trump report on its 2018 income statement as a result of the increase in fair value of the investments in 2018?

Unrealized gain of $25,000.

Realized gain of $25,000.

Unrealized loss of $15,000.

$0.

(13) Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2018, Taylor earns $1,200,000 and pays cash dividends of $960,000. Harrison should report investment revenue for 2018 of

$96,000.

$0.

$480,000.

$384,000.

(15) An ownership interest of 15% in another companys voting stock should be accounted for using the:

cost method.

equity method.

fair value method.

consolidation method.

(16) Under the equity method, if an investee company generates net income, the investor company:

records its proportionate share as an unrealized gain.

does not recognize any share of the net income.

records its proportionate share of the net income as dividend income.

records its proportionate share as an increase in its investment account.

(17) An ownership interest of 30% of the common stock of another corporation should be accounted for using the:

consolidated method.

cost method.

equity method.

fair value method.

(18) If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the investment in the subsidiary under the

divesture method.

cost method.

fair value method.

equity method.

(19) Under the equity method, dividends received by the investor are reported as dividend revenue on the income statement.

True

False

(20) Accounting and reporting for equity securities where the company has 20 - 50% ownership uses which of the following methods?

Equity.

Consolidation.

Fair value.

Amortized cost.

(21) When an investor company owns 25% of an investee companys common stock, the investor is said to have:

a minor influence over the investee company.

a controlling interest over the investee company.

a significant influence over the investee company.

little or no influence over the investee company.