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Accounting 405
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Exam of 18 pages for the course SAFe 5.1 Questions and Answers 2024 at SAFe 5.1 Questions and Answers 2024 (Accounting 405)
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Accounting 405On April 1, 2011, BigBen Company acquired 30% of th shares of Little Tick, Inc.
BigBen aid $100,000 for the investment, which is $40,000 difference to inventory
that will be sold in the remainder of 2011, and the rest to goodwill. Little Tick
recognized a total of $10,000 of dividends to shareholders. BigBen's investment
in Little Tick will affect Big Ben's 2011 net income by: - CORRECT ANSWER-a
loss of $10,500
When the equity method of accounting for investments is used by the investor,
the amortization of additional depreciation due to difference between book values
and fair values of investee assets on the date of acquisition: - CORRECT
ANSWER-Reduces the investment account and reduces investment revenue
Which of the following is not true about the fair value option - CORRECT
ANSWER-The fair value option must be elected for all shares of an investment in
a particular company
Which of the following investment securities held by Zoogle, Inc. are not reported
at fair value in its balance sheet? - CORRECT ANSWER-Debt securities held to
maturity
Both fair values and subsequent growth of the investee are not as relevant for
investments in which of the following categories? - CORRECT
ANSWER-Held-to-maturity securities
Securities that are purchased with the intent of selling them in the near future to
take advantage of short-term price changes are classified as: - CORRECT
ANSWER-Trading securities
Trading securities, by definition, are properly classified in the balance sheet as: -
CORRECT ANSWER-Current assets
Dyckman Dealers has an investment in Thomas Corporation that Dyckman
accounts for as a trading security. Thomas Corporation shares are publicly traded
on the New York Stock Exchanges, and the prevailing price on that exchange
indicates that Dyckman's investment is worth $20,000. However, Dyckman
,management believes that the stock market is generally overvalued and their
analysis of the Thomas Investment suggests to them that it is worth $18,000
Dyckman should carry the Thomas investment on its balance sheet at: -
CORRECT ANSWER-$20,000
Goofy, Inc. bought $15,000 shares of Crazy Co.'s stock for $150,000 on May 5,
2010, and classified the stock as available for sale. The market value of the stock
declined to $118,000 by December 31, 2010. Goofy reclassified this investment
as trading securities in December of 2011 when the market value had risen to
$125,000. What effect on 2011 income should be reported by Goofy for the Crazy
Co. shares? - CORRECT ANSWER-25,000 net loss
Investments in securities available for sale are reported at: - CORRECT
ANSWER-Fair value on the reporting date
When an investor classifies an investment in common stock as securities
available for sale, cash dividends are classified by the investor as: - CORRECT
ANSWER-Dividend income
In the statement of cash flows, inflows and outflows of cash from buying and
selling available for sale securities are considered: - CORRECT
ANSWER-investing activities
Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in
2008 for $50 per share and classified the investment as securities available for
sale. Diamond's market value was $60 per share on December 31, 2009 and $65
on December 31, 2010. During 2011, Hawk sold all of its Diamond stock at $70
per share. In its 2011 income statement, Hawk would report: - CORRECT
ANSWER-A gain of $200,000
If an available-for-sale investment is sold for which there are unrealized losses in
accumulated other comprehensive income (AOCI), the total effect on total
comprehensive income is - CORRECT ANSWER-no effect
On January 1, 2011, Green Corporation purchased 20% of the outstanding voting
common stock of Gold Company for $300,000. The book value of the acquired
shares was $275,000. The excess of cost over book value is attributable to an
, intangible asset on Gold's books that was undervalued and had a remaining
useful life of five years. For the year ended December 31, 2011, Gold reported
net income of $125,000 and paid cash dividends of $25,000. What is the carrying
value of Green's investment in Gold at December 31, 2011? - CORRECT
ANSWER-315,000
The equity method of accounting for investments in voting common stock is
appropriate when: - CORRECT ANSWER-The investor can significantly influence
the investee
If Pop Company exercises significant influence over Son Company and owns
40% of its common stock, then Pop Company: - CORRECT ANSWER-Would
record 40% of the net income of Son Company as investment income each year
Which of the following increases the investment account under the equity method
of accounting? - CORRECT ANSWER-None of these is correct
Jack Corporation purchased a 20% interset in Jill Corporation for $1,500,000 on
January 1, 2011. Jack can significantly influence Jill. On December 10, 2011, Jill
declared and paid $1 million in dividends. Jill reported a net loss of $6 million for
the year. What amount of loss should Jack report in its income statement for
2011 relative to its investment in Jill? - CORRECT ANSWER-1,200,000
The investment category for which the investor's "positive intent and ability to
hold" is important is: - CORRECT ANSWER-Securities classified as held to
maturity
Which category completely excludes equity securities? - CORRECT
ANSWER-Held-to-maturity securities
The income statement reports changes in fair value for which type of securities? -
CORRECT ANSWER-Trading securities
Trading securities are most commonly found on the books of: - CORRECT
ANSWER-Banks
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