Question 1

When the cost of a long-term held-to-maturity debt security is different from the maturity value,the difference is amortized over the remaining life of the security.

Accepted Answer

False

Question 2

Long-term investments are usually held as an investment of cash for use in current operations.

Accepted Answer

Long-term investments are usually held for a period of more than one year with the expectation of earning a return on the investment, rather than being used for current operations.

Question 3

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

Accepted Answer

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence. Under this method, the investor company has significant influence over the operations and financial decisions of the investee company and can exercise control over its financial and operating policies. The investor's financial statements reflect its proportionate share of the net income or losses of the investee, and the investee's assets and liabilities are consolidated with those of the investor.

Question 4

Debt securities are recorded at cost when purchased.

Accepted Answer

Debt securities are recorded at cost when purchased, regardless of fluctuations in market value. Any changes in market value are reflected in the financial statements through adjustments to fair value, but the initial recording is always based on cost.

Question 5

A company holds $40,000 of 7% bonds as a held-to-maturity security.The bonds were purchased at par value.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Accepted Answer

The answer of A company holds $40,000 of 7% bonds...

Question 6

Debt securities are recorded at cost when purchased,and interest revenue for investments in debt securities is recorded when earned.

Accepted Answer

This statement is true. Debt securities are initially recorded at cost and interest revenue is recognized as it is earned.

Question 7

When an investor company owns more than 25% of the voting stock of an investee company,it has a controlling influence.

Accepted Answer

Owning more than 25% of the voting stock of an investee company indicates significant influence, not necessarily controlling influence. Control is typically presumed if the investor owns more than 50% of the voting stock.

Question 8

A controlling investor is called the parent,and the investee is called the subsidiary.

Accepted Answer

This statement is true. In accounting terms, a controlling investor is referred to as the parent company, while the investee is called the subsidiary.

Question 9

Short-term investments are intended to be converted into cash within 3 and 12 months and are readily convertible to cash.

Accepted Answer

Short-term investments are characterized as investments that are held for a short period of time, typically between 3 and 12 months, and can be rapidly converted into cash.

Question 10

Long-term investments include investments in land or other assets not used in a company's operations.

Accepted Answer

Long-term investments refer to investments meant to generate income or appreciation over a long period of time, typically involving assets not used for a company's daily operations such as land, buildings, stocks, and bonds.

Question 11

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment.The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Accepted Answer

This is the correct journal entry to record the receipt of dividends on an investment in stock.

Question 12

Short-term investments are also called marketable securities.

Accepted Answer

Short-term investments are often referred to as marketable securities because they can easily be bought and sold on a market, such as the stock market, within a short period of time.

Question 13

Debt securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

Accepted Answer

Debt securities represent an agreement between the issuer of the security (borrower) and the investor (creditor), where the investor lends money to the issuer in exchange for regular interest payments and the return of the principal amount at maturity. Examples of debt securities include bonds, notes, and certificates of deposit.

Question 14

Land used in the company's operations is reported as a long-term investment.

Accepted Answer

Land used in the company's operations is reported as property, plant, and equipment (PP&E), not as a long-term investment.

Question 15

Any cash dividends received from equity securities are recorded as Dividend Expense.

Accepted Answer

Cash dividends received from equity securities are recorded as Dividend Income (a revenue account), not Dividend Expense. Dividend Expense would be used to record dividends paid out to shareholders by the company.

Question 16

When an investment in an equity security is sold,the sale proceeds are compared with the cost,and if the cost is greater than the proceeds,a gain on the sale of the security is recorded.

Accepted Answer

When the sale proceeds are less than the cost, it is a loss on the sale of the security.

Question 17

When the cost of a short-term held-to-maturity debt security is different from the maturity value,the difference is amortized over the remaining life of the security.

Accepted Answer

The answer of When the cost of a short-term held-to-maturity...

Question 18

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

Accepted Answer

Cash equivalents are defined as investments that are easily accessible and mature within three months or less, making them nearly as good as cash. Examples include Treasury bills, bank certificates of deposit, and money market funds.

Question 19

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

Accepted Answer

Equity securities represent ownership in a company, while creditor investments such as notes, bonds, and certificates of deposit represent a debt relationship with the borrower.

Question 20

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity at par.The investor's journal entry to record the purchase is a debit to Debt Investments for $50,000 and a credit to Cash for $50,000.

Accepted Answer

This is correct as the investor is purchasing debt investments (the bonds) and paying for them with cash. The journal entry correctly reflects this by debiting Debt Investments and crediting Cash for the same amount of $50,000.

Quiz 15: Investments