Question 1

An increase or decrease in the market value of a company's investments in securities is an unrealized gain or loss.

Accepted Answer

An unrealized gain or loss refers to the increase or decrease in the market value of a company's investments in securities that have not been sold yet. It is considered unrealized because the profit or loss has not been realized through a sale transaction.

Question 2

Only investments in debt securities can be classified as held-to-maturity.

Accepted Answer

According to accounting standards, only debt securities can be classified as held-to-maturity. Equity securities and other types of investments cannot be classified as held-to-maturity.

Question 3

Only investments in equity securities can be classified as held-to-maturity.

Accepted Answer

Held-to-maturity classification is a designation for debt securities that companies intend to hold until their maturity date. Equity securities cannot be classified as held-to-maturity because they do not have a fixed maturity date.

Question 4

An increase or decrease in the market value of a company's investments in securities is ________.

Accepted Answer

An increase or decrease in the market value of a company's investments in securities is an unrealized gain or loss, as it has not yet been realized through a sale. It is not considered realized until the security is sold, at which point it would be classified as a realized gain or loss. It is also not treated as an operating income or expense. Depending on the nature of the investment, it may be considered other comprehensive income or other gain or loss on the income statement.

Question 5

Markot Corporation purchased $400,000 of securities and classified them as available-for-sale.The market value of the securities went down to $375,000.Markot Corporation should ________.

Accepted Answer

Available-for-sale securities are reported on the balance sheet at their fair market value. Unrealized gains and losses are not reported on the income statement but in other comprehensive income.

Question 6

Which of the following might be classified as held-to-maturity securities?

Accepted Answer

Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that an entity has the positive intent and ability to hold to maturity. Debt securities such as bonds, notes, and certificates of deposit typically have fixed maturities and fixed payments, making them eligible for classification as held-to-maturity securities under accounting standards. Equity securities do not have a fixed maturity and are not considered held-to-maturity securities. Real estate investments are not classified as either debt or equity securities and therefore not eligible for held-to-maturity classification.

Question 7

Firms must classify their investments in securities into one of three categories: held-to-maturity,trading,and available-for-sale.

Accepted Answer

This is true. The three categories for investment securities are held-to-maturity, trading, and available-for-sale. Each category has its own accounting treatment and affects the financial statements differently.

Question 8

Held-to-maturity securities are investments in debt securities that a company plans to hold until the securities mature.

Accepted Answer

This statement is correct. Held-to-maturity securities are typically investments in bonds or other debt securities that a company has the intention and ability to hold until maturity. These investments are reported on the balance sheet at their amortized cost.

Question 9

No matter how much these investments are actually worth,when the balance sheet is prepared these investments will always be reported at original cost,plus or minus any discount or premium amortization.

Accepted Answer

Held-to-maturity securities are investments in debt securities that a company intends to hold until they reach maturity. The accounting treatment for these securities requires that they be reported on the balance sheet at their amortized cost, which is the original cost adjusted for any discounts or premiums, and any amortization of those discounts or premiums. This is in contrast to trading securities and available-for-sale securities, which are reported on the balance sheet at fair value. Discretionary securities is not a recognized accounting term.

Question 10

If a company buys securities solely to trade them and to make a short-term profit,the securities are classified as available-for-sale securities.

Accepted Answer

Securities bought solely for trading and short-term profit are classified as trading securities, not available-for-sale securities. Available-for-sale securities are bought with the intention of holding them for a longer period of time and may be sold if necessary, but not as the primary source of profit.

Question 11

Centrex Corporation purchased 500 shares of Pfizer stock at $50 per share.The managers of Centrex Corporation intend to sell the shares as soon as their target price is reached,which will probably be within the next three months.During the holding period,the market price of the stock went up $5 per share.How should Centrex account for the change in value?

Accepted Answer

Unrealized gains on investments that are intended to be sold in the short term are recognized in the income statement. Since Centrex Corporation plans to sell the Pfizer stock within the next three months and the market price of the stock has increased by $5 per share for 500 shares, this results in an unrealized gain of $2,500 ($5 increase x 500 shares) that should be reported on the income statement.

Question 12

Match between columns
                        Premises: Ratios that measure the ability of a company to survive over a long period of time
An analytical technique in which each item on a financial statement is expressed as a percentage of a selected item on the financial statement
The market price per share of stock divided by the earnings per share of the stock
Total liabilities divided by total shareholders' equity
Net income divided by average common shareholders' equity
Dividends per share divided by the current market price per share
Ratios that measure the ability of a company to pay its debts and to meet unexpected needs for cash in the short run
Ratios that measure the income or operating success of a company for a given period of time
Ratios that measure whether or not the stock of a company is a good investment

Accepted Answer

The Answer of debt-to-equity ratio and profitability ratios and return is...

Question 13

Match between columns
                        Premises: Ratios that measure whether or not the stock of a company is a good investment
An analytical technique in which each item on a financial statement is expressed as a percentage of a selected item on that financial statement
Events that are both unusual and infrequent
Operations that a company has eliminated, usually by selling a segment or division
A technique used to evaluate a series of financial statement data over a period of time
Ratios that measure the ability of a company to pay its debts and to meet unexpected needs for cash in the short run
Ratios that measure the ability of a company to survive over a long period of time
Ratios that measure the income or operating success of a company for a given period of time

Accepted Answer

The Answer of vertical analysis and horizontal analysis and liquidity is...

Quiz 10: Using Financial Statement Analysis to Evaluate Firm Performance