1. Katy Company purchased a bond issued by Zenith Company. The bond was purchased at its face amount of $1,000,000. Katy's management informs you, the corporate accountant, that it intends to sell the bond on the market as soon as market rates go down that a profit may be earned on the bond. Accordingly, in accounting for this bond, which of the following is correct a. The bond will be recorded on the balance sheet at its carrying value b. Unrealized holding losses on the bond will affect net income C. Unrealized holding gains on the bond will affect other comprehensive income d. The bond will be accounted for under the equity method of accounting because it will be sold soon. 2. Zero Company purchases 35% of the stock of Plus Company. The chief accountant advises you that this stock investment must be accounted for under the equity method. Accordingly, which of the following is incorrect a. The stock must be restated at its fair value on the balance sheet b. Income is recognized when Plus Company reports its earnings instead of when a dividend is received c. Zero exercises some control over Plus d. The equity method is not appropriate if Zero instead acquired 100% of the Plus Company stock. 3. Data Company acquired a bond issued by Justice Company. Data's management elects to report this investment using the fair value option. Which of the following is incorrect with respect to the application of the fair value option a. The election must be made very soon after acquiring the Justice bond b. Management may change its mind with respect to making the election within two years from selecting the option C. All unrealized holding gains and losses are reflected on the income statement d. The bond will be recorded on the balance sheet at its fair value