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Chapter 15 Investments and Fair Value Accounting.
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Chapter 15 Investments and Fair Value Accounting. Accounting 26th Ed by Warren -Test Bank
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CHAPTER 15: INVESTMENTS AND FAIR VALUE ACCOUNTING1. Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of
the investment.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-01 - 15-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. Although marketable securities may be retained for several years, they continue to be classified as
temporary, provided they are readily marketable and can be sold for cash at any time.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-01 - 15-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
3. As with other assets, the cost of a bond investment includes all costs related to the purchase.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 15: Investments and Fair Value Accounting
4. If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last
interest payment.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
5. When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus
any accrued interest is recorded.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
6. The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 15: Investments and Fair Value Accounting
7. To record a bond investment made between interest payment dates, Investment in Bonds would be debited
and Cash and Interest Revenue would be credited.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
8. When long-term investments in bonds are sold before their maturity date, the seller deducts any accrued
interest since the last interest payment date from the selling price.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. If the proceeds from the sale of bond investments exceed the carrying amount of the bonds, a gain is realized.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 15: Investments and Fair Value Accounting
10. Any gains or losses on the sale of bonds normally would be reported in the Other Income (Loss) section of
the income statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-02 - 15-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
ACCT.AICPA.FN.04 - Reporting
BUSPROG: Analytic
11. An equity investment in less than 20% of another company’s stock is accounted for using the cost method.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-03 - 15-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
12. Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for
the investment using the equity method.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.15-03 - 15-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.21 - Corporate Investments Accounting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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