2. If a short-term debt investment is sold, the Investment account is

A. credited for the fair value of the bonds at the sale date.

B. credited for the cost of the bonds at the sale date.

C. credited for the book value of the bonds at the sale date.

D. debited for the cost of the bonds at the sale date.

3. Blaine Company had these transactions pertaining to stock investments:

Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000.

June 1 Received cash dividends of $2 per share on Horton stock.

Oct. 1 Sold 1,200 shares of Horton stock for $33,000 less brokerage fees of $600.

The entry to record the sale of the stock would include a

A. debit to Cash for $32,400.

B. debit to Stock Investments for $30,600.

C. credit to Gain on Sale of Stock Investments for $1,800.

D. credit to Gain on Sale of Stock Investments for $1,200

5. For accounting purposes, the method used to account for long-term investments in common stock is determined by

A. the extent of an investor's influence on the operating and financial affairs of the investee.

B. whether the acquisition of the stock by the investor was friendly or hostile.

C. whether the stock has paid dividends in past years.

D. the amount paid for the stock by the investor.

6. If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

A. no dividends can be expected.

B. it is presumed that the investor has relatively little influence on the investee.

C. the equity method of accounting for the investment should be employed.

D. it is presumed that the investor has significant influence on the investee.

7. When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

A. will prepare consolidated financial statements.

B. has insignificant influence on the investee and that the cost method should be used to account for the investment.

C. should apply the cost method in accounting for the investment.

D. has significant influence on the investee and that the equity method should be used to account for the investment.

9. Viejo Inc. earns $450,000 and pays cash dividends of $150,000 during 2014. Cruz Corporation owns 73,500 of the 210,000 outstanding shares of Viejo. How much revenue from investment should Viejo report in 2014?

A. $157,500

B. $210,000

C. $52,500

D. $105,000

10. When a company owns more than 50% of the common stock of another company,

A. consolidated financial statements are prepared.

B. controlling financial statements are prepared.

C. affiliated financial statements are prepared.

D. significant financial statements are prepared.

12. If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

A. will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

B. is not required since the share prices will likely rebound in the long run.

C. will show a debit to an expense account.

D. will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet.