5. A requirement for a security to be classified as held-to-maturity is

a.ability to hold the security to maturity.

b.positive intent.

c.the security must be a debt security.

d.All of these are required.

6.Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes

a.a debit to Held-to-Maturity Securities at $300,000.

b.a credit to Premium on Investments of $15,000.

c.a debit to Held-to-Maturity Securities at $315,000.

d.None of these answers are correct.

7.Which of the following is notcorrect in regard to trading securities?

a.They are held with the intention of selling them in a short period of time.

b.Unrealized holding gains and losses are reported as part of net income.

c.Any discount or premium is not amortized.

d.All of these are correct.

8.In accounting for investments in debt securities that are classified as trading securities,

a.a discount is reported separately.

b.a premium is reported separately.

c.any discount or premium is not amortized.

d.None of these answers are correct.

9.Investments in debt securities are generally recorded at

a.cost including accrued interest.

b.maturity value.

c.cost including brokerage and other fees.

d.maturity value with a separate discount or premium account.

10.Investments in debt securities should be recorded on the date of acquisition at

a.lower of cost or market.

b.market value.

c.market value plus brokerage fees and other costs incident to the purchase.

d.face value plus brokerage fees and other costs incident to the purchase.

11.An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a

a.debit to Debt Investments.

b.debit to the discount account.

c.debit to Interest Revenue.

d.None of these answers are correct.

12. Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Fair Value MethodEquity Method

a.No EffectDecrease

b.IncreaseDecrease

c.No EffectNo Effect

d.DecreaseNo Effect

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

Fair Value MethodEquity Method

a.IncomeIncome

b. A reduction of the investmentA reduction of the investment

c.IncomeA reduction of the investment

d.A reduction of the investmentIncome

14.When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

a.The investor should always use the equity method to account for its investment.

b.The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee.

c.The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.

d.The investor should always use the fair value method to account for its investment.

15.Dublin Company holds a 30% stake in Club Company which was purchased in 2015 at a cost of $3,000,000. After applying the equity method, the Investment in Club Company account has a balance of $3,040,000. At December 31, 2015 the fair value of the investment is $3,120,000. Which of the following values is acceptable for Dublin to use in its balance sheet at December 31, 2015?

I.$3,000,000

II.$3,040,000

III.$3,120,000

a.I, II, or III.

b.I or II only.

c.II only.

d.II or III only.

16.The fair value option allows a company to

a.value its own liabilities at fair value.

b.record income when the fair value of its bonds increases.

c.report most financial instruments at fair value at any point of time.

d.All of the above are true of the fair value option.

17.When an investment in a held-to-maturity security is transferred to an available-for-sale security, the carrying value assigned to the available-for-sale security should be

a.its original cost.

b.its fair value at the date of the transfer.

c.the lower of its original cost or its fair value at the date of the transfer.

d.the higher of its original cost or its fair value at the date of the transfer.

18. When an investment in an available-for-sale security is transferred to trading because the company anticipates selling the stock in the near future, the carrying value assigned to the investment upon entering it in the trading portfolio should be

a.its original cost.

b.its fair value at the date of the transfer.

c.the higher of its original cost or its fair value at the date of the transfer.

d.the lower of its original cost or its fair value at the date of the transfer.

19.Kern Company purchased bonds with a face amount of $800,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and paid accrued interest for three months of $20,000. The amount to record as the cost of this long-term investment in bonds is

a.$848,000.

b.$828,000.

c.$816,000.

d.$800,000.

Use the following information for questions 20 and 21.

LandisCompany purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, LandisCompany decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively.

20.At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000.What should LandisCompany report as other comprehensive income and as a separate component of stockholders' equity?

a.$51,240.

b.$36,840.

c.$14,400.

d.No entry should be made.

21.At April 1, 2015, LandisCompany sold the Ritter bonds for $2,060,000.After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960.Assuming LandisCompany has a portfolio of Available-for-Sale Debt Securities, what should LandisCompany report as a gain or loss on the bonds?

a.($58,740).

b.($43,740).

c.($4,960).

d.$ 0.

Use the following information for questions 22 and 23.

Instrument Corporation has the following investments which were held throughout 20142015:

Fair Value

Cost12/31/1412/31/15

Trading$600,000$800,000$760,000

Available-for-sale600,000640,000720,000

22.What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2015 related to its investments?

a.$40,000 gain.

b.$40,000 loss.

c.$280,000 gain.

d.$160,000 gain.

23.What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporations balance sheet at December 31, 2014?

a.$80,000 gain.

b.$120,000 gain.

c.$40,000 gain.

d.$240,000 gain.

Use the following information for questions 24 and 25.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhouns portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio:

SecurityCostFair value at 12/31/15

X$125,000$160,000

Y100,00090,000

Z175,000125,000

$400,000$375,000

24.What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015?

a.$35,000.

b.$25,000.

c.$15,000.

d.$0.

25.The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2015 is

a.$35,000.

b.$25,000.

c.$15,000.

d.$0.

26. The following information relates to Windom Company for 2015:

Realized gain on sale of available-for-sale securities$30,000

Unrealized holding gains arising during the period on

available-for-sale securities60,000

Reclassification adjustment for gains included in net income20,000

Windoms 2015 other comprehensive income is

a.$50,000.

b.$70,000.

c.$90,000.

d.$110,000.

27. Valet Corporation began operations in 2015. An analysis of Valets equity securities portfolio acquired in 2015 shows the following totals at December 31, 2015 for trading and available-for-sale securities:

TradingAvailable-for-Sale

SecuritiesSecurities

Aggregate cost$90,000$110,000

Aggregate fair value80,00095,000

What amount should Valet report in its 2015 income statement for unrealized holding loss?

a.$25,000.

b.$5,000.

c.$15,000.

d.$10,000.

28. The first step in the process for revenue recognition is to

a.determine the transaction price.

b.identify the contract with customers.

c.allocate transaction price to the separate performance obligations.

d.identify the separate performance obligations in the contract.

29.The second step in the process for revenue recognition is to

a.allocate transaction price to the separate performance obligations.

b.determine the transaction price.

c.identify the contract with customers.

d.identify the separate performance obligations in the contract.

30.The third step in the process for revenue recognition is to

a.determine the transaction price.

b.identify the separate performance obligations in the contract.

c.allocate transaction price to the separate performance obligations.

d.recognize revenue when each performance obligation is satisfied.

31.The fourth step in the process for revenue recognition is to

a.recognize revenue when each performance obligation is satisfied.

b.identify the separate performance obligations in the contract.

c.allocate transaction price to the separate performance obligations.

d.determine the transaction price.

32.The last step in the process for revenue recognition is to

a.allocate transaction price to the separate performance obligations.

b.recognize revenue when each performance obligation is satisfied.

c.determine the transaction price.

d.identify the contract with customers.

33.Revenue from a contract with a customer

a.is recognized when the customer receive the rights to receive consideration.

b.is recognized even if thecontract is still wholly unperformed.

c.can be recognized even when a contract is still pending.

d.cannot be recognized until a contract exists.

34.Signing of the contract by the two parties is

a.not recorded until one or both parties perform under the contract.

b.recorded at the time the contract is approved by both parties.

c.not recorded until both parties perform under the contract.

d.recorded immediately after the contract is signed.

35.On January 15, 2014, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company.The contract specified a delivery date of March 1.The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery.This contract should be

a.recorded on January 15, 2014.

b.recorded on March 1, 2014.

c.recorded on March 31, 2014.

d.recorded on April 30, 2014.

37.Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software.The total transaction price is $350,000.Based on standalone values, the company estimates the consulting services and support have a value of $100,000 and the software license has a value of $250,000.Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes

a.a credit to Sales Revenue for $250,000 and a credit to Unearned Service Revenue of $100,000.

b.a credit to Service Revenue of $100,000.

c.a credit to Unearned Service Revenue of $100,000.

d.a credit to Sales Revenue of $350,000.

38.A company has satisfied its performance obligation when the

a.company has received payment for goods or services.

b.company has significant risks and rewards of ownership.

c.company has legal title to the asset.

d.company has transferred physical possession of the asset.

39.The most popular input measure used to determine the progress toward completion is

a.units-of-delivery method.

b.cost-to-cost basis.

c.labor hours worked.

d.tons produced.

40.The cost-to-cost basis measures progress towards completion by

a.comparing costs incurred to date with total costs to complete the contract.

b.tracking results of work completed to date; it is an output measure.

c.tracking floors of a building completed versus floors still to be completed.

d.tracking miles of a highway completed versus miles of highway still to be completed.

41.When sales are made with a right of return, the company

a.should not recognize any revenue.

b.should recognize revenue for the full sales price.

c.records the returned asset in a separate inventory account.

d.record the estimated returns in the Sales Returns account.

42.When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a

a.outright sale.

b.financing transaction.

c.repurchase transaction.

d.put option.

43.Contract liability is a companys obligations to transfer goods or services to a customer for which the company has received consideration from the customer.An example of a contract liability is

a.Prepaid subscription.

b.Unearned magazine subscription.

c.Mortgage Payable.

d.Service Revenue.

44.On July 31, OMalley Company contracted to have two products built by Taylor Manufacturing for a total of $185,000.The contract specifies that payment will only occur after both products have been transferred to OMalley Company.OMalley determines that the standalone prices are $100,000 for Product 1 and $85,000 for Product 2.On August 1, when Product 1 has been transferred, the journal entry to record this event include a

a.debit to Accounts Receivable for $100,000.

b.debit to Accounts Receivable for $85,000.

c.debit to Contract Assets for $85,000.

d.debit to Contract Assets for $100,000.

45.Disclosure related to revenue

a.does not require capitalized costs to obtainand fulfill a contract.

b.does not require judgments that affect amount and timing of revenues from contracts.

c.requires disclosure of remaining performance obligations.

d.requires disaggregation of revenues by reportable segments.

46.The percentage-of-completion method

a.recognizes revenue and gross profit each period based upon progress.

b.is used primarily for short-term contracts.

c.accumulates construction costs in the Billings on Construction in Progress account.

d.recognizes revenue and gross profits only when contract is completed.

47.In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be

a.the terms of payment in the contract.

b.the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.

c.the method commonly used by the contractor to account for other long-term construction contracts.

d.the inherent nature of the contractor's technical facilities used in construction.

48.How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract?

a.Progress billings as deferred income, construction in progress as a deferred expense.

b.Progress billings as income, construction in process as inventory.

c.Net balance, as a current asset if debit balance, and current liability if credit balance.

d.Net balance, as income from construction if credit balance, and loss from construction if debit balance.

49.In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the

a.total costs incurred to date.

b.total estimated cost.

c.unbilled portion of the contract price.

d.total contract price

50. The Billings on Construction in Progress account is a(n)

a.contract revenue account.

b.inventory account.

c.contra-inventory account.

d.construction expense account.

51.The principal advantage of the completed-contract method is that

a.reported revenue is based on final results rather than estimates of unperformed work.

b.it reflects current performance when the period of a contract extends into more than one accounting period.

c.it is not necessary to recognize revenue at the point of sale.

d.a greater amount of gross profit and net income is reported than is the case when the percentage-of-completion method is used.

52. On June 1, 2014,Johnson & Sons sold equipment to James Landscaping Services. In exchange for a zero-interest bearing note with a face value of $55,000, with payment due in 12 months.The fair value of the equipment on the date of sale was $50,000.The amount of revenue to be recognized on this transaction in 2014 is

a.$55,000.

b.$5,000

c.$50,000

d.$50,000 sales revenue and $2,917 interest revenue.

53.On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere.The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014.The harvester (cost of $55,000) was delivered on November 30, 2014.The journal entry to record the contract on November 1, 2014 includes a

a.credit to Accounts Receivable for $75,000.

b.credit to Sales Revenue for $75,000.

c.credit to Unearned Sales Revenue for $75,000.

d.debit to Unearned Sales Revenue for $75,000.

54.On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere.The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014.The harvester (cost of $55,000) was delivered on November 30, 2014.The journal entry to record the delivery of the equipment includes a

a.debit to Unearned Sales Revenue for $75,000.

b.credit to Unearned Sales Revenue for $75,000.

c.credit to Costof Goods Sold for $55,000.

d.debit to Inventory for $55,000.

The following information relates to questions 55 and 56.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000.

55.For the year ended December 31, 2015, Cooper would recognize gross profit on the building of:

a.$632,500

b.$690,000

c.$810,000

d.$0

56.At December 31, 2015 Cooper would report Construction in Process in the amount of:

a.$690,000

b.$7,590,000

c.$8,280,000

d.$7,080,000

57.Hayes Construction Corporation contracted to construct a building for $4,500,000. Construction began in 2014 and was completed in 2015. Data relating to the contract are summarized below:

Year ended

December 31,

20142015

Costs incurred$1,800,000$1,350,000

Estimated costs to complete1,200,000

Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2014, and 2015, respectively, Hayes should report gross profit of

a.$810,000 and $540,000.

b.$2,700,000 and $1,800,000.

c.$900,000 and $450,000.

d.$0 and $1,350,000.

58.Monroe Construction Company uses the percentage-of-completion method of accounting. In 2015, Monroe began work on a contract it had received which provided for a contract price of $25,000,000. Other details follow:

2015

Costs incurred during the year$12,000,000

Estimated costs to complete as of December 318,000,000

Billings during the year11,000,000

Collections during the year6,500,000

What should be the gross profit recognized in 2015?

a.$1,000,000

b.$13,000,000

c.$3,000,000

d.$5,000,000

Use the following information for questions 59 and 60.

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method.

59.For the year ended December 31, 2015, Eilert would recognize gross profit on the building of

a.$0.

b.$737,917.

c.$805,000.

d.$945,000.

60. At December 31, 2015, Eilert would report Construction in Process in the amount of

a.$9,660,000.

b.$8,855,000.

c.$8,260,000.

d.$805,000.