Accounting Chapter 14-B

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Chris Cummings

All of the following are reasons that management would want to make an investment for influence except:
A- to ensure that the company will have access to a large amount of cash
B-to diversify product offerings
C-to ensure a supply of raw materials
D-to influence the board of directors

A- to ensure that the company will have access to a large amount of cash

Why is it that most U.S. corporations engage in only a small amount of investment solely for the purpose of earning a return?

-They are not experts in investing
-They want to be the most efficient in spending their management's valuable time
-They concentrate on operating decisions relative to their respective businesses.

Which securities are purchased with the intent of selling them in the near future?

Trading Securities

Which category includes only debt securities?

Held-To-Maturity Securities

What is the most appropriate basis for the valuation of a new investment when properties or services are exchanged for stock?

The fair market value of the stock received

On April 1, 2012, Cotton Inc. purchased as a temporary investment $100,000, face amount, 10% U.S. Treasury notes; they pay interest semiannually on January 1 and July 1. The notes were purchased at 102. What the purchase look like when recording it?

...

When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes______.

a proportionate share of the net income of the investee.

When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as_____.

A deduction form the invested account.

A DEBIT balance in the account Market Adjustment--Available-for-Sale Securities at the end of a year should be interpreted as the net_______.

Unrealized holding gain to date

A CREDIT balance in the account Market Adjustment--Trading Securities at the end of a year should be interpreted as the net_______.

Unrealized holding loss to date

When an entity reduces its interest in an investment in equity securities accounted for by the equity method, and changes to the fair value method, what is the initial cost value for purposes of subsequent changes in market value?

Book value at the date of change

On January 1, 2012, Grain Company purchased investment securities costing $3,000 and classified them as available-for-sale. During 2012, Grain Company sold a portion of these available-for-sale securities with a cost of $1,800 for $1,500. The market value of the remainder of these securities available-for-sale at December 31, 2012, was $1,300. Grain prepares its statement of cash flows using the indirect method.

What represents the effect of these transactions on the statement of cash flows for Grain Company for the year ending December 31, 2012?

Operating Activities- $300 increase
Investing Activities- $ 1,500 decrease

On January 1, 2012, Gore Company purchased investment securities costing $3,000 and classified them as trading securities. During 2012, Gore Company sold a portion of these trading securities with a cost of $1,800 for $1,500. The market value of the remainder of these trading securities at December 31, 2012, was $1,300. Gore prepares its statement of cash flows using the indirect method.

What represents the effect of these transactions on the statement of cash flows for Gore Company for the year ending December 31, 2012?

Operating Activities- $1,300
Investing Activities- No Effect

Which of the following is true?
A- Held-to-maturity securities should not be classified as current under any circumstance.
B- Trading securities can be classified as current or noncurrent depending on management's intent.
C- Trading securities should not be classified as current under any circumstance.
D- Available-for-sale securities can be classified as current or noncurrent depending on management's intent.

D- Available-for-sale securities can be classified as current or non-current depending on management's intent.

Where are unrealized increases and decreases on securities classified as available for sale reported?

In the Stockholders' Equity Section of the balance sheet.

The only significant difference between the provisions of international accounting standards as promulgated by IAS 39 and U.S. accounting standards under FASB Statement No. 115 is________.

IAS 39 allows all unrealized gains and losses on securities valued at fair value to be reported in net income for the period while SFAS No. 115 does not.

Which of the following is true regarding the provisions of IAS 39?

A- IAS 39 allows companies to choose between recognizing gains and losses on trading securities as part of net income or as part of stockholders' equity.
B- IAS 39 does not require unrealized gains and losses on trading securities to be recognized as part of net income.
C- IAS 39 allows companies to choose between recognizing gains and losses on available-for-sale securities as part of net income or as part of stockholders' equity.
D- IAS 39 requires gains and losses on available for sale securities to be recognized as part of net income.

C-IAS 39 allows companies to choose between recognizing gains and losses on available-for-sale securities as part of net income or as part of stockholders' equity.

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