You are on page 1of 2

1.Short-term stock investments should be valued on the balance sheet at A.cost b.the higher of cost or fair value c.

the lower of cost or fair value d. fair value. 2. If a parent company has two wholly owned subsidiaries, how many legal and economic entities are there from the viewpoint of the shareholders of the parent company? Legal: 3 Economic: 1 3.If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss A. is not required since the share prices will likely rebound in the long run. B. will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet. C. will show a debit to an expense account. D. will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet. 4. Which of the following is a major difference when accounting for long-term debt investments versus short-term debt investments? A. At the end of the year, any unrealized gain or loss on long-term debt investments must be recognized in the stockholders' equity section of the balance sheet. B. When selling long-term investments, no gain or loss is recognized. C.Interest revenue is not recognized for long-term investments. D. For shortterm investments, bond premium or discount is not amortized to interest revenue. 5. The balance sheet presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of A. allowance for doubtful accounts. B. treasury stock. C. prepaid expenses. D.discount on bonds payable. 6.Corporations invest in other companies for all of the following reasons except to A. generate earnings. B. meet strategic goals. C. increase trading of the other companies' stock. D. house excess cash until needed. 7.Revenue is recognized when cash dividends are received under A.the cost method. B.the equity method. C.the controlling interest method. D.both the cost and equity methods. 8.The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment A.enables the investor to exercise significant influence over the investee B.is obtained by an exchange of stock for stock. C.is composed of common stock and it is the investor's intent to vote the common stock. D.ensures a source of supply of raw materials for the investor. 9.Short-term investments are A.(1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is shorter. B.(1) readily marketable and (2) intended to be converted into cash after the current year or operating cycle, whichever is longer. C.(1) readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is longer. D.(1)

readily marketable and (2) intended to be converted into cash within the current year or operating cycle, whichever is shorter. 10. Dobson Corporation sells 200 shares of common stock being held as a short-term investment. The shares were acquired six months ago at a cost of $50 a share. Dobson sold the shares for $40 a share. The entry to record the sale is Cash.................................................................................... 8,000 Loss on Sale of Stock Investments...................................... 2,000 Stock Investments...................................................... 10,000 11. For each of the following transactions, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used.Purchased land for cash. A.Does not represent a cash flow B.Investing activities section C.Operating activities section D.Financing activities section 12. Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is A.$120,000. B.$155,000. C.$115,000 D.$125,000. 13.Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the A.direct method. B.working capital method. C. costbenefit method. D. indirect method. 14.The order of presentation of activities on the statement of cash flows is A.operating, financing, and investing. B.financing, investing, and operating. C.operating, investing, and financing. D. financing, operating, and investing. 15.In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a(n) A. addition to cash flow from investing activities. B. subtraction from net income. C. addition to net income. D. subtraction from cash flow from investing activities. 16.Which of the following would be subtracted from net income using the indirect method? A. An increase in accounts payable B. Depreciation expense C. An increase in accounts receivable D.A decrease in prepaid expenses