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Test Bank for Advanced Accounting 4th Edition by Hamlen ; complete solution

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TEST
yBANK
yCHAPTER
y1
Intercorporate yInvestments: yAn yOverview

MULTIPLE yCHOICE

1. Topic: yAccounting yfor yequity ysecurities ywith yno ysignificant
yinfluenceyLO y1
A ycompany yinvests y$300,000 yin yequity ysecurities yon yNovember y30, y2019, yand yclassifies
ythem yas yinvestments ywith yno ysignificant yinfluence. yAt yDecember y31, y2019, ythe
ycompany’s yyear-end, ythe ysecurities yhave ya yfair yvalue yof y$310,000. yOn yFebruary y1,
y2020, ythe ycompany ysells ythe ysecurities yfor y$295,000.

Which ystatement yis ytrue yregarding yhow ythis yinformation yis yreported yin ythe ycompany’s
yfinancialystatements?

a. The ycompany’s yDecember y31, y2019 ybalance ysheet yreports ythe ysecurities yat
y$300,000,yand ya ygain yof y$10,000 yis yreported yon ythe y2019 yincome ystatement.
b. The ycompany’s yDecember y31, y2019 ybalance ysheet yreports ythe ysecurities yat
y$310,000,yand ya yloss yof y$5,000 yis yreported yon ythe y2020 yincome ystatement.
c. The ycompany’s yDecember y31, y2019 ybalance ysheet yreports ythe ysecurities yat
y$310,000,yand ya yloss yof y$15,000 yis yreported yon ythe y2020 yincome ystatement.
d. The ycompany’s yDecember y31, y2019 ybalance ysheet yreports ythe ysecurities yat
y$300,000,yand yno ygain yor yloss yappears yon ythe y2019 yincome ystatement.

ANS: y y y y c

2. Topic: yAccounting yfor yequity ysecurities ywith yno ysignificant
yinfluenceyLO y1
Which ystatement yis ytrue yconcerning ythe yreporting yfor yequity yinvestments ywith yno
ysignificantyinfluence?

a. They yare yreported yat yfair yvalue, ywith yany ychanges yin yvalue yreported yin yincome.
b. They yare ycategorized yas yeither ytrading yor yavailable-for-sale, ywith yunrealized
ychanges yin ythe yvalue yof ytrading ysecurities yreported yin yincome, yand yunrealized
ychanges yin ythe yvalueyof yAFS ysecurities yreported yin yOCI.
c. They yare yreported yat ycost, ywith yunrealized ychanges yin yvalue yreported yin yOCI.
d. They yare yreported yat yfair yvalue, ywith yunrealized ychanges yin yvalue

yreported yin yOCI.yANS: a

, Use ythe yfollowing yinformation yon ya ycompany’s yinvestments yin yequity ysecurities ywith
yno ysignificant yinfluence yto yanswer yQuestions y3 yand y4. yThe ycompany’s yaccounting yyear
yendsyDecember y31.

Date yof Fair Date Selling
Investment yAcquisitio Cost yValue ySold yPrice
n y12/31/19
Colt yCompany ystock 9/20/19 $38,000 $37,000 2/10/20 $42,000
Dana yCompany ystock 10/2/19 14,000 14,200 1/17/20 13,000

3. Topic: yAccounting yfor yequity yinvestments ywith yno ysignificant
yinfluenceyLO y1
What yamount yis yreported yfor ygain yor yloss yon ythese ysecurities yin y2019 yincome?

a. No ygain yor yloss
b. $800 yloss
c. $3,000 ygain
d. $1,000 yloss

ANS: b
($37,000 y– y$38,000) y+ y($14,200 y– y$14,000) y= y$800 yloss

4. Topic: yAccounting yfor yequity yinvestments ywith yno ysignificant
yinfluenceyLO y1
What yamount yis yreported yfor ygain yor yloss yon ythese ysecurities yin y2020 yincome?

a. No ygain yor yloss
b. $3,000 ygain
c. $3,800 ygain
d. $4,000 ygain

ANS: c
($42,000 y– y$37,000) y+ y($13,000 y– y$14,200) y= y$3,800 ygain

5. Topic: yAccounting yfor yequity yinvestments ywith yno ysignificant
yinfluenceyLO y1
A ycompany ybuys yan yequity yinvestment yfor y$100 yin y2020. yThe yinvestment yhas yno
ysignificant yinfluence. yAt ythe yend yof y2020, ythe ycompany ystill yholds ythe yinvestment yand yit
yhas ya ymarket yvalueyof y$115. y In y2021, ythe ycompany ysells ythe yinvestment yfor y$108.

How yis ythis yinformation yreported yin ythe ycompany’s y2020 yand y2021 yincome ystatements?

a. $15 ygain yon ythe y2020 yincome ystatement; y$7 yloss yon ythe y2021 yincome ystatement.
b. Does ynot yappear yon ythe y2020 yincome ystatement; y$8 ygain yon ythe y2021 yincome ystatement.
c. Does ynot yappear yon ythe y2020 yincome ystatement; y$7 yloss yon ythe y2021 yincome ystatement.
d. $8 ygain yon ythe y2020 yincome ystatement; ydoes ynot yappear yon ythe y2021 yincome ystatement.

ANS: a

,6. Topic: yAccounting yfor yequity yinvestments ywith yno ysignificant
yinfluenceyLO y1
On yDecember y20, y2020, ya ycompany ypays y$40,000 yfor yan yinvestment yin yequity ysecurities
ywith yno ysignificant yinfluence. yOn yDecember y31, y2020, ythe ycompany’s yyear-end, ythe
ystock yhas ya ymarket yvalue yof y$37,000. y The ycompany ysells ythe ystock yin y2021 yfor
y$44,000.

On yits yincome ystatement, ythe ycompany yreports:

a. A yloss yof y$3,000 yin y2020, yand ya ygain yof y$7,000 yin y2021
b. No ygain yor yloss yin y2020, yand ya ygain yof y$4,000 yin y2021
c. A ygain yof y$4,000 yin y2020, yand yno ygain yor yloss yin y2021
d. No ygain yor yloss yin y2020, yand ya ygain yof y$7,000

yin y2021yANS: a

7. Topic: yAccounting yfor yequity yinvestments ywith yno ysignificant
yinfluenceyLO y1
On yOctober y25, y2020, ya ycompany ypays y$35,000 yfor yan yinvestment yin yequity ysecurities,
ywith yno ysignificant yinfluence. y On yDecember y31, y2020, ythe ycompany’s yyear-end, ythe ystock
yas ya ymarket yvalue yof y$36,000. yThe ycompany ysells ythe ystock yin y2021 yfor y$32,000. yHow yis
ythe ycompany’s y2020 yother ycomprehensive yincome yaffected yby ythe yabove ytransactions yin
yeach yyear?

a. Increase yof y$1,000 yin y2020, ydecrease yof y$1,000 yin y2021
b. Increase yof y$1,000 yin y2020, ydecrease yof y$4,000 yin y2021
c. No yeffect yin y2020, ydecrease yof y$3,000 yin y2021
d. No yeffect yon yOCI yin yeither yyear.

ANS: y y y y d

Use ythe yfollowing yinformation yon ya ycompany’s yinvestments yin ydebt ysecurities yto
yansweryQuestions y8 y- y11. y The ycompany’s yaccounting yyear yends yDecember y31.

Date yof Fair yValue Date Selling
Investment Acquisition Cost 12/31/19 Sold Price
Colt yCompany ybonds 9/20/19 $38,000 $37,000 2/10/20 $42,000
Dana yCompany ybonds 10/2/19 14,000 14,200 1/17/20 13,000

8. Topic: yAccounting yfor ydebt yinvestments yclassified yas
ytradingyLO y1
If ythe yabove ydebt yinvestments yare ycategorized yas ytrading ysecurities, ywhat yamount yis
yreported yforygain yor yloss yon ysecurities yin y2019 yincome?

a. No ygain yor yloss
b. $800 yloss
c. $3,000 ygain
d. $200 ygain

ANS: b
($37,000 y- y$38,000) y+ y($14,200 y- y$14,000) y= y$(800) yloss

, 9. Topic: yAccounting yfor ydebt yinvestments yclassified yas
ytradingyLO y1
If ythe yabove ydebt yinvestments yare ycategorized yas ytrading ysecurities, ywhat yamount yis
yreported yforygain yor yloss yon ysecurities yin y2020 yincome?

a. No ygain yor yloss
b. $3,000 ygain
c. $3,800 ygain
d. $5,000 ygain

ANS: c
($42,000 y- y$37,000) y+ y($13,000 y- y$14,200) y= y$3,800 ygain

10. Topic: yAccounting yfor ydebt yinvestments yclassified yas
yAFSyLO y1
If ythe yabove yinvestments yare ycategorized yas yavailable-for-sale ysecurities, ywhat yamount yis
yreportedyfor ygain yor yloss yon ysecurities yin y2019 yincome?

a. No ygain yor yloss
b. $800 yloss
c. $3,000 ygain
d. $200 ygain

ANS: a

11. Topic: yAccounting yfor ydebt yinvestments yclassified yas
yAFSyLO y1
If ythe yabove yinvestments yare ycategorized yas yavailable-for-sale ysecurities, ywhat yamount yis
yreportedyas ygain yor yloss yon ysecurities yin y2020 yincome?

a. $3,000 ygain
b. $3,800 ygain
c. $2,100 ygain
d. $3,100 ygain

ANS: a
($42,000 y– y$38,000) y+ y($13,000 y– y$14,000) y= y$3,000 ygain

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