LL CHILL JU PUIS) Instructions: Designate the best answer for each of the following questions. 1. Dykes Corporation purchased 2,000 shares of Kile common stock at $70 per share plus $6,000 brokerage fees as a short-term investment. The shares were subse- quently sold at $80 per share less $6,800 brokerage fees. The cost of the securities purchased and gain or loss on the sale were Cost Gain or Loss a $140,000 $20,000 gain b. $140,000 $7,200 gain C. $146,000 $7,200 loss d. $146,000 $7,200 gain 2. At the end of its first year, the trading securities portfolio consisted of the following common stocks: Cost Market Agler Corporation $69,600 $75,000 Sayler Inc. $90,000 $80,700 Watts Corporation $120,000 $114,000 The unrealized loss to be recognized under the fair value method is a. $9,300. b. $15,300 c. $6,000. d. $9,900. 3. In the following year, the Sayler common stock in question 2 is sold for cash proce of $87,000. The gain or loss to be recognized on the sale is a a. gain of $6,300. b. loss of $600. C. gain of $3,300 d. loss of $3,000. Test Bank for Accounting Principles, Ninth Edition 4. Stine Corp. issued $800,000 of 8%, 5-year bonds at 102 on January 1, 2010. The straight-line method of amortization is used and the bonds pay interest annually on January 1. The amount of bond interest expense that Stine should report on lis 2010 income statement is a $64.000 b. $65,280 C. $60,800 d. $67,200. 5. Todd Corporation issues long-term bonds at a discount. Amortization of the discount will a. increase bond interest expense. b. decrease bond interest expense. C. decrease the carrying value of the bonds on the balance sheet. d. be reported as a loss on the income statement. 6. Under the equity method of accounting, the investment in common stock is initially recorded at cost and the investment account is subsequently a. debited for cash dividends received and credited for the investor's share of investee net income. b. credited for cash dividends received C. debited for the investor's share of investee net income. d. both b and c e. both a and b. 7. Mouns Company owns 30% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income Mouns Company's investment in Darian will increase Mouns' net income by a. $15,000. b. $30,000 c. $24,000 d. $6,000. 8. For trading securities, account Unrealized Loss-Income is reported a. as a contra account in the stockholders' equity section of the balance sheet b in the other expenses and losses section of the income statement c. in the operating section of the income statement. d as a contra account in the current asset section of the balance sheet 9. Bonds payable are converted into common stock. In recording the conversion a. additional paid-in capital is not recognized b. a gain or loss on conversion may be recognized. c. the carrying value of the bonds is ignored. d. the current market prices of the bonds and common stock are ignored. 10. The cost method of accounting for long-term investments in common stock is typically used when the investor a. has a controlling interest. b. owns between 20% and 50% of the investee's outstanding common stock. C. does not have significant influence over the investee. recognizes any goodwill when preparing consolidated financial statements
