Investments Test Bank

INVESTMENT

Accounting for Trading and Available-for-sale Securities
y Theories
1. Trading Securities and Available for Sale securities are recorded initially at cost regardless if it is investment in equity securities or investment in debt securities. Which of the following is correct in acquiring securities? a. debit Trading Securities plus transaction cost; credit Cash b. debit Available for Sale Securities, debit Expense Account; credit Cash c. debit Available for Sale Securities; credit Land, credit Gain on Sale d. debit Trading Securities, debit Expense Account; credit Cash 2. The company can also acquire different securities at a time through Lump-sum basis. We can allocate the cost of these securities by using the __________? a. relative expenses of the securities b. gains or losses of the securities c. relative fair market value of the securities d. relative maturity value of the securities 3. Trading securities and available for sale securities can also be acquired through exchange of noncash property. Which statement should be considered? a. It should be taken up at fair market value of either of the consideration given or consideration received whichever is more clearly determinable. b. It should be taken up at maturity value of either of the consideration given or consideration received whichever is more clearly determinable. c. It should be taken up at fair market value of either of the consideration given or consideration received whichever is more clearly indeterminable. d. It should be taken up at fair market value of the consideration given only which is clearly determined in the market. 4. Any change in fair market will give rise to gains or losses of either Trading securities or Available for sale securities whether it is an equity or debt security. These gains or losses will be presented in I. Trading Securities: debit balance - other operating expense or losses; credit balance ² other operating income. II. Available for sale securities as part of Shareholder·s Equity: an addition, if credit balance; a deduction, if debit balance a. I only 5. Which statement is correct? a. An entity may reclassify Trading Securities whenever they want (PAS 39 paragraph 20). b. I and II c. II only d. neither I and II

900.600.000 4. Cost 2.600.500. On January 1 2008.000 7. The following data pertaining to the equity investment held by Damortis company classified as ³available for sale´ Cost Market value Dec. Investments Problem: 1.000 Ichi Company Ni Company San Company Scott December 31. 2008 shareholders equity.000 4.600.000 Available for sale 8. The company also paid commission to be stockbroker in the amount of 200.300.000.500.000. An entity shall not reclassify Trading Securities (PAS 39 paragraph 20) d.b. 4.000 9.500.200. c.000 What amount should be reported as unrealized gain in December 31.100. 2007 4. 2007 Dec.000 Market Value 2.800.000 What amount of unrealized gain on these securities should be reported in the 2008 income statement? 3.000 2. Yong Company purchased marketable equity securities to be held as Trading for 8.000 3.000 Aggregate Cost Aggregate market value Lower of cost or market .400. Scott Company had investment in Trading Securities as follows.000 5. Trading 6.000 2.100.500.000. Go Company began operation on January 1 2008.000 8. the following information pertains to the company¶s December 31 2008 portfolio of equity securities. On December 2008. The market value of the equity securities on December 31 2008 is 9. 31.000.000 no securities were sold during 2008. 31.000 4. An entity may only reclassify their Trading Securities when they are bankrupt (PAS 39 paragraph 20). An entity may or may not reclassify Trading Securities whenever they want (PAS 39 paragraph 20). 2008 balance sheet should be report the trading securities at? 2.

900. Financial assets include all of the following except . Loan and receivable d.000. Loans receivable Answer: A 4.000 5.000. A contractual right to exchange financial instruments under conditions that are potentially unfavorable d. The December 31. Financial instrument b.100. Data regarding Ju Company¶s Available for sale Securities follow: Cost 5. It is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities a. 2008 Difference between the cost and market value are considered temporary. 2008 statement of shareholders equity should report unrealized gain on these securities at? Theories |INVESTMENT S} 1.000 7. An equity of another entity ANSWE: C 3. Debt instrument c.000 Market 5.Value applied to each security 5. Contractual right to receive cash or another financial asset from another entity c. Derivative instrument ANSWE: A 2. Equity instrument c.000 December 31. Debt instrument d. 5.200.000 5. Cash b. A financial asset is any asset that is (choose incorrect answer) a. Equity instrument b. It is any contract that gives rise to both a financial asset of one entity and a financial liability or an equity instrument of another entity a. 2007 December 31.000 go The market declines are judge to be ³other than temporary´ what amount should report as total loss on these securities in its 2007 income.200.

Unrealized gains or losses are not recognized b. d. To deliver cash or other financial asset to another entity II. Long-term investments are a. When current investments are carried at market value a. Inventories c. Both I and II d. 1. Specifically. Classified as current assets d. Readily realizable c. Neither I and II ANSWER: C a. Acquired primarily for accretion of wealth b. Property. c. plant and equipment d. preferred stock and other capital stock a. Unrealized gains and losses are recognized and included in equity c. Intended to be held for more than one year 4. these securities represent ownership shares such as common stock. A financial liability is any liability that is a contractual obligation I. Debt securities c. Unrealized gains and losses are recognized and included in determination of income d. These are assets held by an enterprise for the accretion of wealth. Current assets 2. Equity securities b. II only c. Unrealized gains are included in determination of income 3. for capital appreciation or for other benefits accruing to the investing enterprise a.Prepaid expenses Cash on bank Trade accounts receivable Loans receivable ANSWER: A 5. Investments b. Marketable securities d. To exchange financial instruments with another entity under conditions that are potentially unfavorable a. b. I only b. Current investments .

Only those stockholders registered as of this date are entitled to receive dividends a. Date of declaration b. Date of record c. It is the date on which the stock and transfer book of the corporation is closed for registration. Date of mailing . Date of payment d.5.

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