Question 1 (2 points) Saved Which of the following is not correct in regard to trading securities? Question 1 options: They are held with the intention of selling them in a short period of time. Unrealized holding gains and losses are reported as part of net income. Any discount or premium is not amortized. All of these are correct. Question 2 (2 points) Saved Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. The discount of $35,850 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2013, Patton Company should report interest revenue from the Scott Co. bonds of: Question 2 options: $63,588. $62,113. $62,052. $60,000. Question 3 (2 points) Saved Debt securities that are accounted for at amortized cost, not fair value, are Question 3 options: held-to-maturity debt securities. trading debt securities. available-for-sale debt securities. never-sell debt securities. Question 4 (2 points) Saved 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 Question 4 options: its original cost. its fair value at the date of the transfer. the higher of its original cost or its fair value at the date of the transfer. the lower of its original cost or its fair value at the date of the transfer. Question 5 (2 points) Saved Watt Co. purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes Question 5 options: a debit to Held-to-Maturity Securities at $300,000. a credit to Premium on Investments of $15,000. a debit to Held-to-Maturity Securities at $315,000. none of these. Question 6 (2 points) Landis Co. purchased $1,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2012, with interest payable on July 1 and January 1. The bonds sold for $1,041,580 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2012 and December 31, 2012 by the amortized premiums of $3,540 and $3,660, respectively. At April 1, 2013, Landis Co. sold the Ritter bonds for $1,030,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2013 was $1,033,750. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds? Question 6 options: ($29,370). ($21,870). ($3,750). $ 0. Question 7 (2 points) A correct valuation is Question 7 options: available-for-sale at amortized cost. held-to-maturity at amortized cost. held-to-maturity at fair value. none of these. Question 8 (2 points) If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the Question 8 options: cost method. fair value method. divesture method. equity method. Question 9 (2 points) Which of the following is not generally correct about recording a sale of a debt security before maturity date? Question 9 options: Accrued interest will be received by the seller even though it is not an interest payment date. An entry must be made to amortize a discount to the date of sale. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. A gain or loss on the sale is not extraordinary. Question 10 (2 points) Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as Question 10 options: a reduction of the carrying value of the investment. additional paid-in capital. an addition to the carrying value of the investment. dividend income. Question 11 (2 points) Myers Co. acquired a 60% interest in Gannon Corp. on December 31, 2012 for $1,260,000. During 2013, Gannon had net income of $800,000 and paid cash dividends of $200,000. At December 31, 2013, the balance in the investment account should be Question 11 options: $1,260,000. $1,740,000. $1,620,000. $1,860,000. Question 12 (2 points) Which of the following is correct about the effective-interest method of amortization? Question 12 options: The effective interest method applied to investments in debt securities is different from that applied to bonds payable. Amortization of a discount decreases from period to period. Amortization of a premium decreases from period to period. The effective-interest method produces a constant rate of return on the book value of the investment from period to period. Question 13 (2 points) Harrison Co. owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2013, Taylor earns $1,200,000 and pays cash dividends of $960,000. Harrison should report investment revenue for 2013 of Question 13 options: $480,000. $384,000. $96,000. $0. Question 14 (2 points) The fair value option allows a company to Question 14 options: value its own liabilities at fair value. record income when the fair value of its bonds increases. report most financial instruments at fair value by recording gains and losses as a separate component of stockholders equity. All of the above are true of the fair value option. Question 15 (2 points) Investments in debt securities are generally recorded at Question 15 options: cost including accrued interest. maturity value. cost including brokerage and other fees. maturity value with a separate discount or premium account. Question 16 (2 points) Jordan Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for Question 16 options: 10 periods and 10% from the present value of 1 table. 10 periods and 8% from the present value of 1 table. 20 periods and 5% from the present value of 1 table. 20 periods and 4% from the present value of 1 table. Question 17 (2 points) On October 1, 2012, Renfro Co. purchased to hold to maturity, 2,000, $1,000, 9% bonds for $1,980,000 which includes $30,000 accrued interest. The bonds, which mature on February 1, 2021, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2012 balance sheet at a carrying value of Question 17 options: $1,950,000. $1,951,500. $1,980,000. $1,980,500. Question 18 (2 points) On January 3, 2012, Moss Co. acquires $400,000 of Adam Companys 10-year, 10% bonds at a price of $425,672 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the straight-line method, what is the amount of premium amortization that would be recognized in 2014 related to these bonds? Question 18 options: $2,568 $1,688 $1,840 $2,008 Question 19 (2 points) On January 2, 2013 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2013 Jobs, Inc. reported net income of $630,000 and distributed dividends of $270,000. The ending balance in the Investment in Pod Company account at December 31, 2013 was $480,000 after applying the equity method during 2013. What was the purchase price Pod Company paid for its investment in Jobs, Inc? Question 19 options: $255,000 $390,000 $570,000 $705,000 Question 20 (2 points) Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the Question 20 options: investor sells the investment. investee declares a dividend. investee pays a dividend. earnings are reported by the investee in its financial statements. Question 21 (2 points) During 2010, Hauke Co. purchased 3,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2012 was $2,940,000. The bonds mature on March 1, 2017, and pay interest on March 1 and September 1. Hauke sells 1,500 bonds on September 1, 2014, for $1,482,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is Question 21 options: $0. $7,200. $12,000. $16,800. Question 22 (2 points) A reclassification adjustment is reported in the Question 22 options: income statement as an Other revenue or expense. stockholders equity section of the balance sheet. statement of comprehensive income as other comprehensive income. statement of stockholders equity. Question 23 (2 points) Investments in debt securities should be recorded on the date of acquisition at Question 23 options: lower of cost or market. market value. market value plus brokerage fees and other costs incident to the purchase. face value plus brokerage fees and other costs incident to the purchase. Question 24 (2 points) An option to convert a convertible bond into shares of common stock is a(n) Question 24 options: embedded derivative. host security. hybrid security. fair value hedge. Question 25 (2 points) Unrealized holding gains or losses which are recognized in income are from securities classified as Question 25 options: held-to-maturity. available-for-sale. trading. none of these. Question 26 (2 points) On January 3, 2012, Moss Co. acquires $400,000 of Adam Companys 10-year, 10% bonds at a price of $425,672 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2013 related to these bonds? Question 26 options: $40,000 $42,568 $38,312 $38,160 Question 27 (2 points) Held-to-maturity securities are reported at Question 27 options: acquisition cost. acquisition cost plus amortization of a discount. acquisition cost plus amortization of a premium. fair value. Question 28 (2 points) Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. The discount of $35,850 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2013, Patton Company should increase its Debt Investments account for the Scott Co. bonds by Question 28 options: $3,588. $2,056. $1,794. $1,028. Question 29 (2 points) Which of the following is not a debt security? Question 29 options: Convertible bonds Commercial paper Loans receivable All of these are debt securities. Question 30 (2 points) Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2013. During 2013, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investment (Darby) account at December 31, 2013 should be Question 30 options: $580,000. $600,000. $660,000. $680,000.