TEST BANK
CHAPTER 1
Intercorporate Investments: An Overview
MULTIPLE CHOICE
1. Topic: Accounting for equity securities with no significant influence
LO 1
A company invests $300,000 in equity securities on November 30, 2019, and classifies them as
investments with no significant influence. At December 31, 2019, the company’s year-end, the
securities have a fair value of $310,000. On February 1, 2020, the company sells the securities
for $295,000.
Which statement is true regarding how this information is reported in the company’s financial
statements?
a. The company’s December 31, 2019 balance sheet reports the securities at $300,000,
and a gain of $10,000 is reported on the 2019 income statement.
b. The company’s December 31, 2019 balance sheet reports the securities at $310,000,
and a loss of $5,000 is reported on the 2020 income statement.
c. The company’s December 31, 2019 balance sheet reports the securities at $310,000,
and a loss of $15,000 is reported on the 2020 income statement.
d. The company’s December 31, 2019 balance sheet reports the securities at $300,000,
and no gain or loss appears on the 2019 income statement.
ANS: c
2. Topic: Accounting for equity securities with no significant influence
LO 1
Which statement is true concerning the reporting for equity investments with no significant
influence?
a. They are reported at fair value, with any changes in value reported in income.
b. They are categorized as either trading or available-for-sale, with unrealized changes in
the value of trading securities reported in income, and unrealized changes in the value
of AFS securities reported in OCI.
c. They are reported at cost, with unrealized changes in value reported in OCI.
d. They are reported at fair value, with unrealized changes in value reported in OCI.
ANS: a
©Cambridge Business Publishers, 2019
Test Bank, Chapter 1 1-1
, Use the following information on a company’s investments in equity securities with no
significant influence to answer Questions 3 and 4. The company’s accounting year ends
December 31.
Date of Fair Value Date Selling
Investment Acquisition Cost 12/31/19 Sold Price
Colt Company stock 9/20/19 $38,000 $37,000 2/10/20 $42,000
Dana Company stock 10/2/19 14,000 14,200 1/17/20 13,000
3. Topic: Accounting for equity investments with no significant influence
LO 1
What amount is reported for gain or loss on these securities in 2019 income?
a. No gain or loss
b. $800 loss
c. $3,000 gain
d. $1,000 loss
ANS: b
($37,000 – $38,000) + ($14,200 – $14,000) = $800 loss
4. Topic: Accounting for equity investments with no significant influence
LO 1
What amount is reported for gain or loss on these securities in 2020 income?
a. No gain or loss
b. $3,000 gain
c. $3,800 gain
d. $4,000 gain
ANS: c
($42,000 – $37,000) + ($13,000 – $14,200) = $3,800 gain
5. Topic: Accounting for equity investments with no significant influence
LO 1
A company buys an equity investment for $100 in 2020. The investment has no significant
influence. At the end of 2020, the company still holds the investment and it has a market value
of $115. In 2021, the company sells the investment for $108.
How is this information reported in the company’s 2020 and 2021 income statements?
a. $15 gain on the 2020 income statement; $7 loss on the 2021 income statement.
b. Does not appear on the 2020 income statement; $8 gain on the 2021 income statement.
c. Does not appear on the 2020 income statement; $7 loss on the 2021 income statement.
d. $8 gain on the 2020 income statement; does not appear on the 2021 income statement.
ANS: a
©Cambridge Business Publishers, 2019
1-2 Advanced Accounting, 4th Edition
,6. Topic: Accounting for equity investments with no significant influence
LO 1
On December 20, 2020, a company pays $40,000 for an investment in equity securities with no
significant influence. On December 31, 2020, the company’s year-end, the stock has a market
value of $37,000. The company sells the stock in 2021 for $44,000.
On its income statement, the company reports:
a. A loss of $3,000 in 2020, and a gain of $7,000 in 2021
b. No gain or loss in 2020, and a gain of $4,000 in 2021
c. A gain of $4,000 in 2020, and no gain or loss in 2021
d. No gain or loss in 2020, and a gain of $7,000 in 2021
ANS: a
7. Topic: Accounting for equity investments with no significant influence
LO 1
On October 25, 2020, a company pays $35,000 for an investment in equity securities, with no
significant influence. On December 31, 2020, the company’s year-end, the stock as a market
value of $36,000. The company sells the stock in 2021 for $32,000. How is the company’s 2020
other comprehensive income affected by the above transactions in each year?
a. Increase of $1,000 in 2020, decrease of $1,000 in 2021
b. Increase of $1,000 in 2020, decrease of $4,000 in 2021
c. No effect in 2020, decrease of $3,000 in 2021
d. No effect on OCI in either year.
ANS: d
Use the following information on a company’s investments in debt securities to answer
Questions 8 - 11. The company’s accounting year ends December 31.
Date of Fair Value Date Selling
Investment Acquisition Cost 12/31/19 Sold Price
Colt Company bonds 9/20/19 $38,000 $37,000 2/10/20 $42,000
Dana Company bonds 10/2/19 14,000 14,200 1/17/20 13,000
8. Topic: Accounting for debt investments classified as trading
LO 1
If the above debt investments are categorized as trading securities, what amount is reported for
gain or loss on securities in 2019 income?
a. No gain or loss
b. $800 loss
c. $3,000 gain
d. $200 gain
ANS: b
($37,000 - $38,000) + ($14,200 - $14,000) = $(800) loss
©Cambridge Business Publishers, 2019
Test Bank, Chapter 1 1-3
, 9. Topic: Accounting for debt investments classified as trading
LO 1
If the above debt investments are categorized as trading securities, what amount is reported for
gain or loss on securities in 2020 income?
a. No gain or loss
b. $3,000 gain
c. $3,800 gain
d. $5,000 gain
ANS: c
($42,000 - $37,000) + ($13,000 - $14,200) = $3,800 gain
10. Topic: Accounting for debt investments classified as AFS
LO 1
If the above investments are categorized as available-for-sale securities, what amount is
reported for gain or loss on securities in 2019 income?
a. No gain or loss
b. $800 loss
c. $3,000 gain
d. $200 gain
ANS: a
11. Topic: Accounting for debt investments classified as AFS
LO 1
If the above investments are categorized as available-for-sale securities, what amount is
reported as gain or loss on securities in 2020 income?
a. $3,000 gain
b. $3,800 gain
c. $2,100 gain
d. $3,100 gain
ANS: a
($42,000 – $38,000) + ($13,000 – $14,000) = $3,000 gain
©Cambridge Business Publishers, 2019
1-4 Advanced Accounting, 4th Edition
