1. The value of an investment in bonds a a. increases when interest rates fall D b. decreases when interest rates fall D c. in not affected by changes in interest rates c d. is equal to the expected future cash flows discounted at the stated rate of interest 2. If a debt security is classified as available-forsale c a. only realized holding gains and losses are reported in the income statement a b. changes in market value during the accounting period are reported in the income statement as unrealized gains and losses D c. changes in market value during the accounting period are reported in the income statement as realized gains and losses D d. it is reported in the balance sheet at amortized cost, and changes in market value are not recognized in the income statement. 3. When a debt security that is classified as heldto-maturity is purchased D a. the cash outflow is reported as an operating activity a b. the cash outflow is reported as an investing activity o c. the cash outflow is reported as a financing activity D d. the cash outflow is reported as an investing and financing activity 4. An investment in bonds, classified as an trading investment, having a carrying value of $99,000 is sold at a gain of $2,000. How is the sale reported in the statement of cash flows? [ a. as $2,000 investing inflow c b. as a $101,000 operating inflow a c. as a $99,000 investing inflow a d. as a $101,000 investing inflow 5. If a lease is classified as a direct financing lease, the lessor reports c a. a gain or loss on sale of the asset to the lessee c b. a receivable in the balance sheet measured at the present value of the cash flows under the lease agreement discounted at the lessor's implicit rate of interest c c. the historical cost of the leased asset less accumulated depreciation as property, plant, and equipment in the balance sheet o d. the receipt of lease payments as an financing activity in the statement of cash flows 6. When the lessor reports a direct financing lease, interest revenue over the life of the lease will D a. increase each year c b. decrease each year D c. be the same each year c d. equal the amount of the lease payment each year 7. The equity method of accounting for investments in equity securities is required when D a. the investor owns more than 50% of the stock of the investee company n b. the investor has control over the investee company c c. the investor has significant influence over the investee company I d. the fair value of the equity securities is not readily determinable 8. Changes in the market value of investments in equity securities are accumulated in the balance sheet as an element of other comprehensive income when the securities are I a. accounted for under the equity method E b. consolidated E c. classified as trading securities D d. classified as available-for-sale 9. Frederik Enterprises owns 10% of the voting shares of XYZ, Inc. During 2001,XYZ, Inc. paid $30,000 in dividends and reported net income of $110,000. What will Gloria report as income from its investment in XYZ, Inc. for the year 2001? c a. $110,000 c b. $11,000 D. c. $30,000 E d. $3,000 10. Company A and Company B combined in a business combination. After the combination took place, only Company A remains. What kind of business combination took place between Company A and Company B? c a. a consolidation D b. an acquisition resulting in a parent/subsidiary relationship c c. a merger c d. a reorganization 11. When a business combination is accounted for as a pooling of interests, D a. the assets acquired are reported at fair value and the liabilities assumed are reported at book value c b. the assets acquired and the liabilities assumed are reported at book value D c. the assets acquired and the liabilities assumed are reported at fair value D d. the assets acquired are reported at book value and the liabilities assumed are reported at fair value 12. A company acquires goodwill when c a. The fair value of net assets acquired in a business combination exceeds cost c b. The acquisition cost in a business combination exceeds the fair value of the net assets acquired c c. The book value of net assets acquired in a business combination exceeds cost [ d. The acquisition cost in a business combination exceeds the book value of the net assets acquired 13. Dividends received are not reported as income in the income statement when an investment in stock is I a. Accounted for under the cost method E b. Classified as a trading security c c. Accounted for under the equity method c d. Classified as available-for-sale