Investment MCQs

Nichols Enterprises has an investment in 25,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shar...

$300,000
$250,000.
either $250,000 or $300,000, as either are defensible valuations.
$275,000, the midpoint of Nicholsâ€™s range of reasonably likely valuations of Elliott.

Anthers Inc. bought the following portfolio of trading securities near the end of 2011. (FV = Fair Value) SecA: Cost:80k FV(12/31/11): 84k SecB: Cos...

162k - Noncurrent Asset
162k - Current Asset
160k - Noncurrent Asset
160k - Current Asset

On January 1, 2011, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. ...

$284,400.
$300,000.
$315,600.
$360,000.

Goofy Inc. bought 15,000 shares of Crazy Co.â€™s stock for $150,000 on May 5, 2010, and classified the stock as available for sale. The market va...

$0.
$25,000 net loss.
$7,000 net gain.
$32,000 net loss

Hobson Company bought the securities listed below during 2010. These securities were classified as trading securities. In its December 31, 2010, incom...

$41,000.
$54,000.
$13,000.
$0.

What is the effect on a companyâ€™s cash flows and reported profit from accounting for an investment as a trading security versus as an available...

Effect on Total Cash Flows: Little, if any; Effect on Net income: Little, if any.
Effect on Total Cash Flows: Significant; Effect on Net income: Significant.
Effect on Total Cash Flows: Little, if any; Effect on Net income: Significant.
Effect on Total Cash Flows: Significant; Effect on Net income: Little, if any.

All investments in debt and equity securities that donâ€™t fit the definitions of the other reporting categories are classified as:

Trading securities.
Securities available for sale.
Held-to-maturity securities.
Consolidated securities.

Investments in securities available for sale are reported at:

Discounted present value.
Lower of cost or market.
Historical cost.
Fair value on the reporting date.

All investment securities are initially recorded at:

Cost.
Present value.
Equity value.
None of the above is correct.

GAAP regarding accounting for certain debt and equity securities generally will apply to an investment when the percentage of ownership of another com...

Less than 20%.
20% to 50%.
Over 50%.
Exactly 100%.

When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as:

A return of capital.
A loss.
A deduction from the investment account.
Dividend income.

Investments in securities to be held for an unspecified period of time are reported at:

Historical cost.
Present value.
Lower of cost or market.
Fair value.

Unrealized holding gains and losses on securities available for sale would have the following effects on retained earnings:

Gains: Increase; Losses: No change
Gains: No change; Losses: Decrease.
Gains: No change; Losses: No change.
Gains: Increase; Losses: Decrease.

Janet Jones, an analyst with All Purpose Heater Company, plans to use a Monte Carlo experiment to estimate the simulated daily demand for All Purpose...

65-69; 70-88
65-84; 85-99
65-90; 91-99
65-89; 90-99

Logan Corporation, located in Boston, has experienced major distribution problems in supplying key Los Angeles-based customers. Delivery times have ...

09-14
30-60
45-74
00-18

Debrock Corporation has an option to abandon one of its capital investment projects. The option to abandon makes Debrock the

Writer of a put option
Owner of a put option.
Writer of a call option.
Owner of a call option

Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2008 for $50 per share and classified the investment as securities available ...

A gain of $50,000.
A gain of $150,000.
A gain of $200,000.
A gain of $300,000.

Dim Corporation purchased 1,000 shares of Witt Corporation stock in 2008 for $800 per share and classified the investment as securities available for ...

A realized gain of $50,000.
A recognition of unrealized losses of $400,000.
A loss on the sale of investments of $450,000.
A trading gain of $50,000 and an unrealized loss of $500,000.

On January 1, 2011, Everglade Company purchased the following securities and properly accounted for them as securities available for sale: (FV = Fair...

$0.
$19,000 unrealized gain.
$12,000 net unrealized gain.
$7,000 unrealized loss

Boulter, Inc. began business on January 1, 2011. At the end of December 2011, Boulter had the following investments in equity securities: (FV = Fair V...

Income: 8.5k; AOCISE: 0
Income: 0; AOCISE: 8.5k
Income: 6k; AOCISE: 2.5k
Income: 2.5k; AOCISE: 6k

A weakness of _(insert from choices below)__ is that firms can increase or decrease net income by choosing to sell particular investments with net...

the available-for-sale approach
the trading-securities approach
both the available-for-sale and trading-securities approaches
neither the available-for-sale and trading-securities approaches

If an available-for-sale investment is sold for which there are unrealized gains in accumulated other comprehensive income (AOCI), a reclassification ...

reducing OCI for the amount of unrealized gains in AOCI.
increasing OCI for the amount of unrealized gains in AOCI.
no effect on OCI, as OCI only includes the effects of unrealized gains and losses.
no effect on OCI, as the realized gain is included in AOCI.

If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI), the total effect o...

an increase.
a decrease.
no effect.
canâ€™t determine given this information.

Seybert Systems accounts for its investment in Wang Engineering as available for sale. Seybertâ€™s balance in accumulated other comprehensive inc...

$100,000.
$120,000.
$80,000.
cannot be determined from this information.

Sloan Company has owned an investment during 2011 that has increased in fair value. After all closing entries for 2011 are completed, the effect of th...

higher under the available-for-sale approach than under the trading-securities approach.
lower under the available-for-sale approach than under the trading-securities approach.
the same amount under the available-for-sale and trading-securities approaches.
not possible to identify whether the available-for-sale or trading-securities approaches yield higher shareholdersâ€™ equity given this information.

When investments are treated as available-for-sale, other comprehensive income (OCI) also includes the tax effects associated with unrealized holding ...

accumulated other comprehensive income would be increased by the tax benefits typically associated with unrealized holding gains.
other comprehensive income typically would be reduced by the tax expense associated with unrealized holding gains.
accumulated other comprehensive income would not be affected by taxes.
none of the above.

The Guitar World (TGW) holds an investment that increased in fair value over 2011, and accounts for that investment as available for sale. When consid...

recognize tax expense on the income statement, and probably increase taxes payable.
recognize tax expense on the income statement, and probably increase its deferred tax liability.
reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase taxes payable.
reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase its deferred tax liability.

The equity method of accounting for investments in voting common stock is appropriate when:

The investor can significantly influence the investee.
The investor has voting control over the investee.
The investor intends to hold the common stock indefinitely.
The investor is assured of a continued supply of a valuable raw material.

Consolidated financial statements are prepared when one company has:

Accounted for the investment using the equity method.
Accounted for the investment as securities available for sale.
Control over another company.
None of the above is correct.

If Pop Company owns 15% of the common stock of Son Company, then Pop Company typically:

Would record 15% of the net income of Son Company as investment income each year.
Would record dividends received from Son Company as investment revenue.
Would increase its investment account by 15% of Son Company income each year.
All of the above are correct.

If Pop Company exercises significant influence over Son Company and owns 40% of its common stock, then Pop Company:

Would record dividends received from Son Company as investment revenue.
Would increase its investment account when Son Company declares dividends.
Would record 40% of the net income of Son Company as investment income each year.
All of the above are correct.

When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:

As a reduction in the investment account.
As an increase in the investment account.
As dividend income.
As a contra item to stockholdersâ€™ equity

When the equity method of accounting for investments is used by the investor, the investment account is increased when:

A cash dividend is received from the investee.
The investee reports a net income for the year.
The investor records additional depreciation related to the investment.
The investee reports a net loss for the year

Which of the following increases the investment account under the equity method of accounting?

Decreasing the market price of the investeeâ€™s stock
Dividends paid by the investee that were declared in the previous year
Net loss of the investee company
None of the above is correct.

If the fair value of equity securities is not determinable and the equity method is not appropriate, the securities should be reported at:

Amortized cost.
Cost.
Consolidated value.
Net present value.

When the investorâ€™s level of influence changes, it may be necessary to change from the equity method to another method. When the level of owner...

Amortized cost on the date of ownership change.
Fair market value on the date of ownership change.
Discounted present value on the date of ownership change.
The current balance, and this balance would serve as the new "cost".

On July 1, 2011, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactl...

$3,200,000.
$3,160,000.
$3,000,000.
$3,080,000.

Which of the following is not true about accounting for investments under IFRS?

IFRS allows proportionate consolidation of investments where two or more investors have joint control.
IFRS is more restrictive than U.S. GAAP concerning when an investor can elect the fair value option.
IFRS requires that the accounting policies of an investee be adjusted to correspond to those of the investor when applying the equity method.
IFRS does not allow use of the equity method where two or more investors have joint control.

Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $1...

15%.
18.75%.
30%.
50%.

Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2011. Jack can significantly influence Jill. On December 10...

$1 000,000.
$1,200,000.
$1,400,000.
$1,500,000.

Hope Company bought 30% of Faith Corporation in 2011. Hopeâ€™s purchase price equaled 30% of the book value of Faithâ€™s net identifiable as...

Overstated by $1,050,000; understated by $1,050,000.
Understated by $1,050,000; understated by $1,050,000.
Overstated by $1,200,000; overstated by $1,200,000.
Understated by $1,200,000; overstated by $1,050,000.

Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on Jan 1, 2011. On November 1, 2011, Hack declared and paid $1 million in ...

$1,100,000.
$2,400,000.
$1,500,000.
$1,600,000.

Assume that, on 1/1/11, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total sh...

$1,320,000
$1,260,000
$1,242,000
None of the above is correct.

Gerken Company concluded at the beginning of 2011 that the companyâ€™s ownership interest in DillCo had increased to the point that it became app...

net income and retained earnings will be higher by $25,000.
net income will be unchanged, and retained earnings will be higher by $25,000.
net income and retained earnings will be higher by $75,000.
the accounts will be unchanged, because no adjustment is necessary.

On April 1, 2011, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30...

a loss of $10,500.
earnings of $4,500.
earnings of $1,125.
earnings of $3,450.

Cucumber Company concluded at the beginning of 2011 that the companyâ€™s ownership interest in PickelCo had decreased to the point that it became...

net income and retained earnings will be lower by $25,000.
net income will be unchanged, and retained earnings will be lower by $25,000.
the accounts will be unchanged, because no adjustment is necessary. D. other comprehensive income and accumulated other comprehensive income will be lower by $25,000

When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between b...

Reduces the investment account and increases investment revenue.
Increases the investment account and increases investment revenue.
Reduces the investment account and reduces investment revenue.
Increases the investment account and reduces investment revenue.

On January 1, 2011, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquire...

$295,000.
$300,000.
$315,000.
$320,000

At the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $45 million. At the time of purchase, the carrying value of Sky Techâ�...

$18 million.
$30 million.
$60 million.
None of the above is correct.

The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is:

$4.5 million.
$15 million.
$27 million.
None of the above is correct.

Assume that, on 1/1/11, Sosa Enterprises paid $5,100,000 for its investment in 36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 t...

$3,200,000
$3,180,000
$3,135,000
$3,027,000

Smith buys and sells securities which it typically classifies as available for sale. On December 15, 2011, Smith purchased $500,000 of Jones shares, a...

investment income of $25,000 in its income statement.
other comprehensive income of $25,000.
accumulated other comprehensive income of $525,000.
an investment in Jones of $500,000.

Which of the following is not true about the fair value option?

The fair value option is irrevocable.
The fair value option must be elected for all shares of an investment in a particular company.
Electing the fair value option for held-to-maturity investments simply reclassifies those investments as trading securities.
All of the above are true

Which of the following is not true when the fair value option is elected for an investment that would normally be accounted for under the equity metho...

No journal entry need be made to recognize the investorâ€™s portion of the investeeâ€™s net income.
Unrealized gains and losses on that investment are recognized in net income.
No journal entry need be made to recognize the investorâ€™s portion of dividends paid by the investee.
All of the above are true.

Under IAS No. 39: which is not a category for accounting for investments?

Fair value through profit and loss.
Fair value through other comprehensive income.
Held-to-maturity.
Available-for-sale.

Under IFRS No. 9: which is not a category for accounting for investments?

Fair value through profit and loss.
Fair value through other comprehensive income.
Held-to-maturity.
Amortized cost.

Which of the following is NOT true about the "fair value through profit and loss" approach for accounting for investments under IFRS?

Allowed under both IAS No. 39 and IFRS No. 9.
Includes unrealized gains in earnings.
Requires reclassification of realized gains from other comprehensive income.
Not vulnerable to other-than-temporary impairments.

Which of the following is NOT true about the "fair value through other comprehensive income" approach for accounting for investments under IFRS No. 9?...

Allowed for debt investments.
Includes unrealized gains in other comprehensive income.
Does not require reclassification of realized gains from other comprehensive income.
Allowed for equity investments.

Wang Corporation purchased $100,000 of Hales Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Wang cla...

$0.
$10,000.
$20,000.
$30,000.

If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company intends to sell ...

the investment is not written down to fair value.
the investment is written down to fair value, and the entire impairment loss is recognized in net income.
the investment is written down to fair value, and the entire impairment loss is recognized in accumulated other comprehensive income.
the investment is treated the same way it would be treated if the decline in fair value was viewed as temporary.

If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company has incurred a c...

the investment is written down to fair value, and only the non-credit-loss component of the impairment loss is recognized in net income.
the investment is written down to fair value, and the entire impairment loss is recognized in net income.
the investment is written down to fair value, and only the credit-loss component of the impairment loss is recognized in net income.
the investment is written down to fair value, but none of the impairment loss is recognized in net income.

If the fair value of a trading security declines for a reason that is viewed as "other than temporary",

the investment is not written down to fair value.
the investment is written down to fair value, and a special "impairment loss" is recognized in net income.
the investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income.
the investment is treated the same way it would be treated if the decline in fair value was viewed as temporary.

When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," t...

Recorded as a deferred credit.
Included in income.
Recorded as deferred asset.
Treated as unrealized

An OTT impairment for an equity investment is recognized if fair value declines below amortized cost and

The company has incurred non-credit losses.
The company does not have the intent and ability to hold the investment until fair value recovers.
The company lacks intent to hold the investment until fair value recovers.
The company has incurred credit losses.

If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temp...

the investment is not written down to fair value.
the investment is written down to fair value, and the impairment loss is recognized in net income.
the investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income.
the investment is written down to fair value, and only the credit loss is included in net income.

If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temp...

Which of the following is NOT a reason to consider a decline in the fair value of a debt investment to be "other than temporary"?

The investor determines that a credit loss exists on the investment.
The investor intends to sell the investment.
The investor believes it is "more likely than not" that the investor will be required to sell the investment prior to recovering the amortized cost of the investment less any credit losses arising in the current year.
The investor intends to hold the investment to maturity.

Nichols Corporation purchased $100,000 of Holly Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Nicho...

$0.
$10,000.
$20,000.
$30,000.

Nichols Corporation purchased $100,000 of Holly Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Nicho...

$0.
$10,000.
$20,000.
$30,000.

Nichols Corporation purchased $100,000 of Holly Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Nicho...

$0.
$10,000.
$20,000.
$30,000.

Dicker Furriers purchased one thousand shares of Loose Corporation stock on January 10, 2010, for $800 per share and classified the investment as secu...

Investment in Loose stock: 100k; Inc. statement loss on investments: 700k
Investment in Loose stock: 100k; Inc. statement loss on investments: 300k
Investment in Loose stock: 400k; Inc. statement loss on investments: 0
Investment in Loose stock: 400k; Inc. statement loss on investments: 300k

Which of the following is not an example of a derivative?

Interest rate swap.
Cash.
Forward contract.
Stock option.

Which of the following is not true about derivatives?

Large losses on derivative investments have been reported in the press.
Derivatives are so named because their value is derived from some underlying measure.
Derivatives are useful instruments for managing risk.
Accounting for derivatives is fully resolved and no additional rules or interpretations are likely.

Capital investments require balancing risk and return. Managers have a responsibility to ensure that the investments that they make in their own firms...

Exceeds the rate of return associated with the firmâ€™s beta factor.
Is less than the rate of return associated with the firmâ€™s beta factor.
Is greater than the prime rate of return.
Is less than the prime rate of return

Transactions in debt and shareholder equity are typically handled by:

Payroll
Accounting staff
Upper management
Accounting Supervisors

"Off the balance sheet" means that:

Obligations and commitments are not recorded in the accounts of the company
Obligations and commitments are recorded, but in the income statement accounts
Obligations and commitments are recorded, but in the Statement of Changes in Financial Position
Capital Budgets are properly authorized and approved.

Which of the following is not normally associated with the Finance and Investment Cycle?

Cash Flow forecasting
Capital Budgeting
Issuance of Share Capital
Payment to Trade Supplier

Accounting estimates include which of the following:

Trade payable balances
Amortization of Capital Assets
Cash balances
Capital Asset costs

Who is responsible for making accounting estimates?

Auditors
Management
Board of Directors
Shareholders

A company is the plaintiff in two lawsuits. The first suit involves a competitor who has made an exact copy of one of the companyâ€™s products, a...

$0
$5,000,000
$5,125,000
$5,250,000

Which of the following actions would an entity most likely take to hedge an investment in a foreign operation?

Invest in the debt securities of the same foreign operation.
Invest in the equity securities of another foreign entity with the same foreign currency as the operation being hedged.
Invest in the debt securities of another foreign entity with the same foreign currency as the operation being hedged.
Borrow from another foreign entity with the same foreign currency as the operation being hedged.

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Investment MCQs