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Advanced Accounting, 5th Edition by Hamlen | All Chapters 1-16 TEST BANK.
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, TEST BANKCHAPTER 1
Intercorporate Investments: An Overview
MULTIPLE CHOICE
1. Topic: Accounting for equity securities with no significant influence
LO 1
A company invests $350,000 in equity securities on November 30, 2023, and classifies them as
investments with no significant influence. At December 31, 2023, the company’s year-end, the
securities have a fair value of $345,000. On February 1, 2024, the company sells the securities
for $360,000.
Which statement is true regarding how this information is reported in the company’s financial
statements?
a. The company’s December 31, 2023 balance sheet reports the securities at $350,000,
and a loss of $5,000 is reported on the 2023 income statement.
b. The company’s December 31, 2023 balance sheet reports the securities at $345,000,
and a gain of $10,000 is reported on the 2024 income statement.
c. The company’s December 31, 2023 balance sheet reports the securities at $345,000,
and a gain of $15,000 is reported on the 2024 income statement.
d. The company’s December 31, 2023 balance sheet reports the securities at $350,000,
and no gain or loss appears on the 2023 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, 2023
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 12/31/23 Sold Price
Colt Company stock 9/20/23 $38,000 $37,000 2/10/24 $42,000
Dana Company stock 10/2/23 14,000 14,200 1/17/24 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 2023 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 2024 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 2024. The investment has no significant
influence. At the end of 2024, the company still holds the investment and it has a market value
of $105. In 2025, the company sells the investment for $115.
How is this information reported in the company’s 2024 and 2025 income statements?
a. $5 gain on the 2024 income statement; $10 gain on the 2025 income statement.
b. Does not appear on the 2024 income statement; $15 gain on the 2025 income statement.
c. Does not appear on the 2024 income statement; $10 gain on the 2025 income statement.
d. $15 gain on the 2024 income statement; does not appear on the 2025 income statement.
ANS: a
$105 - $100 = $5 gain in 2024; $115 - $105 = $10 gain in 2025.
©Cambridge Business Publishers, 2023
1-2 Advanced Accounting, 5th Edition
, 6. Topic: Accounting for equity investments with no significant influence
LO 1
On December 20, 2024, a company pays $40,000 for an investment in equity securities with no
significant influence. On December 31, 2024, the company’s year-end, the stock has a market
value of $37,000. The company sells the stock in 2025 for $44,000.
On its income statement, the company reports:
a. A loss of $3,000 in 2024, and a gain of $7,000 in 2025
b. No gain or loss in 2024, and a gain of $4,000 in 2025
c. A gain of $4,000 in 2024, and no gain or loss in 2025
d. No gain or loss in 2024, and a gain of $7,000 in 2025
ANS: a
($37,000 - $40,000) = $3,000 loss in 2024; ($44,000 - $37,000) = $7,000 gain in 2025.
7. Topic: Accounting for equity investments with no significant influence
LO 1
On October 25, 2024, a company pays $35,000 for an investment in equity securities, with no
significant influence. On December 31, 2024, the company’s year-end, the stock has a market
value of $36,000. The company sells the stock in 2025 for $32,000. How is the company’s 2024
other comprehensive income affected by the above transactions in each year?
a. Decrease of $2,000 in 2024, increase of $2,000 in 2025
b. Decrease of $2,000 in 2024, increase of $4,000 in 2025
c. No effect in 2024, increase of $2,000 in 2025
d. No effect on OCI in either year.
ANS: d
8. Topic: Accounting for equity investments with no significant influence
LO 1
A company has equity investments with no significant influence, purchased for $550,000 and
carried at $520,000 at the beginning of 2024. At the end of 2024, the investments have a fair
value of $560,000 and are still held by the company. What amount is reported in income and in
other comprehensive income for 2024?
Income OCI
a. $0 $40,000 gain
b. $40,000 gain $0
c. $10,000 gain $0
d. $0 $10,000 gain
ANS: b
$560,000 - $520,000 = $40,000 gain for 2024, reported in income.
©Cambridge Business Publishers, 2023
Test Bank, Chapter 1 1-3
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