Long Term Investment MCQs

At year end, Rim Co. held several investments with the intent of selling them in the near term. The investments consisted of $100,000, 8%, 5-year bon...

$50,000
$127,000
$142,000
$155,000

On January 2, Year 1, Adam Co. purchased as a long-term investment 10,000 shares of Mill Corp.â€™s common stock for $40 a share. These securitie...

$100,000
$80,000
$60,000
$40,000

A corporation acquires a 30% voting interest in another corporation. In this situation, the long-term investment is generally accounted for on the in...

Lower-of-cost-or-market.
Cost.
Consolidated.
Equity.

Johnstone Company owns 10,000 shares of Breva Corporationâ€™s stock; Breva currently has 40,000 shares outstanding. During the year, Breva had n...

$110,000
$150,000
$160,000
$240,000

An investor uses the equity method to account for an investment in common stock. The investorâ€™s equity in the earnings of the investee is affe...

No Yes
No No
Yes No
Yes Yes

An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investo...

Not affected by its share of the earnings or losses of the investee.
Not affected by its share of the earnings of the investee, but is decreased by its share of the losses of the investee
Increased by its share of the earnings of the investee, but is not affected by its share of the losses of the investee.
Increased by its share of the earnings of the investee, and is decreased by its share of the losses of the investee.

On January 1, Dyer Co. acquired as a long-term investment a 20% common stock interest in Eason Co. Dyer paid $700,000 for this investment when the fai...

$32,000
$48,000
$80,000
$112,000

Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the fair value m...

No No
Yes Yes
Yes No
No Yes

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

A proportionate interest in the net income of the investee.
A cash dividend received from the investee
Periodic amortization of the goodwill related to the purchase.
Depreciation related to the excess of fair value over the carrying amount of the investee’s depreciable assets at the date of purchase by the investor.

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axe...

$0
$30,000
$60,000
$90,000

Ajit wants to receive Rs. 40000 p.a. for 20 years by investing @ 5%. How much he will have to invest now?

498489
498849
498948
498984

Which of the following statements CORRECTLY describe(s) a bearer bond? I It usually does not have a maturity date. II. It is considered to be owned ...

II only
I & II only
I & III only
I, II & III

Mr. A, a risk-averse investor, is considering to invest in either an US Treasury bill which currently pays a 4.5% rate of return, or a risky portfolio...

The risk premium is 0 and Mr. A should invest in the risky portfolio.
The risk premium is 0 and Mr. A should invest in the US Treasury bill.
The risk premium is 0.5% and Mr. A should invest in the risky portfolio. D
The risk premium is 0.5% and Mr. A should invest in the US Treasury bill.

The investment category for which the investorâ€™s "positive intent and ability to hold" is important is:

Securities reported under the equity method.
Trading securities.
Securities classified as held to maturity.
Securities available for sale.

Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet?

Common stock held as available for sale securities.
Debt securities held to maturity.
Preferred stock held as trading securities.
All of the above are reported at fair value.

If Ziggy Company concluded that an investment originally classified as held to maturity would now more appropriately be classified as available for sa...

not reclassify the investment, as original classifications are irrevocable.
reclassify the investment as available for sale and immediately recognize in net income any unrealized gain or loss on the reclassification date.
reclassify the investment as available for sale and immediately recognize in accumulated other comprehensive income any unrealized gain or loss on the reclassification date.
need to restate earnings, as the original classification was in error.

If Dizbert Company concluded that an investment originally classified as available for sale would now more appropriately be classified as held to matu...

not reclassify the investment, as original classifications are irrevocable.
reclassify the investment as held to maturity and immediately recognize in net income any unrealized gain or loss on the reclassification date.
reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investmentâ€™s amortized cost basis for future amortization.
need to restate earnings, as the original classification was in error

The interest rate that is printed on the bond certificate is not referred to as the:

Stated rate.
Contract rate
Nominal rate.
Effective rate.

Most corporate bonds are:

Mortgage bonds.
Debenture bonds.
Secured bonds.
Collateral bonds.

The method used to pay interest depends on whether the bonds are:

Registered or coupon.
Mortgaged or unmortgaged.
Indentured or debentured.
Callable or redeemable.

The rate of interest that actually is incurred on a bond payable is called the:

Face rate.
Contract rate.
Effective rate.
Stated rate.

Interest expense is:

The effective interest rate times the amount of the debt outstanding during the interest period.
The stated interest rate times the amount of the debt outstanding during the interest period.
The effective interest rate times the face amount of the debt.
The stated interest rate times the face amount of the debt.

Bonds usually sell at their:

Maturity value.
Face value.
Present value.
Statistical expected value

Straight-line amortization of bond discount or premium:

Can be used for amortization of discount or premium in all cases and circumstances.
Provides the same amount of interest expense each period as does the effective interest method.
Is appropriate for deep discount bonds.
Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.

An amortization schedule for bonds issued at a premium:

Summarizes the amortization of the premium, a contra-asset account with a credit balance.
Is reported in the balance sheet.
Is a schedule that reflects the changes in the debt over its term to maturity.
All of the above are correct.

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2011. LPCâ€™s accountant has projected the following amortization schedule from issu...

At par.
At a premium.
At a discount.
Cannot be determined from the given information.

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2011. LPCâ€™s accountant has projected the following amortization schedule from issu...

3.5%
6%
7%
None of the above is correct.

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2011. LPCâ€™s accountant has projected the following amortization schedule from issu...

3%
3.5%
6%
7%

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2011. LPCâ€™s accountant has projected the following amortization schedule from issu...

No gain or loss
$3,717 gain
$6,000 loss
$2,283 loss

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2011, is f...

Three months.
Four months.
Six months.
Seven months.

For long-term, held-to-maturity securities, a receipt of interest income from the investee (Company X) requires a journal entry which includes:

a debit to Interest Receivable
a credit to Interest Earned
a credit to Investment--Company X
a debit to Investment--Company X

For long-term, available-for-sale securities, a receipt of dividends from the investee (Company X) requires a journal entry which includes:

a debit to dividends receivable
a debit to cash
a credit to Investment--Company X
a debit to Investment--Company X

The parent company owns 60% of the outstanding shares of the common shares of the Jan-Lin Company which has reported earnings of $50,000. The journal ...

a debit to Investment in Jan-Lin Common Shares for $50,000
a debit to Investment in Jan-Lin Common Shares for $30,000
a credit to Investment in Jan-Lin Common Shares for $30,000
a credit to Earnings from Invest. in Jan-Lin Com. Shares. for $50,000

Which of the following is INCORRECT?

Class of Investment: Short-term held-to-maturity debt securities Reporting Method: Cost
Class of Investment: Long-term held-to-maturity debt securities Reporting Method: Equity
Class of Investment: Equity securities with significant influence Reporting Method: Equity
Class of Investment: Equity securities with controlling influence Reporting Method: Equity

A multinational company based in the United States sold goods to British Stores when the exchange rate was 1.50. The accountant debited Accounts Recei...

$16,200 gain
$2,700 loss
$1,800 gain
$1,000 gain

A multinational company based in the United States sold goods to Canadian Stores when the exchange rate was 0.80. The accountant debited Accounts Rece...

$1.080 gain
$2,160 loss
$1,080 loss
$1,350 loss

Ordinarily, the proceeds from the sale of a bond issue will be equal to:

The face amount of the bond.
The total of the face amount plus all interest payments.
The present value of the face amount plus the present value of the stream of interest payments.
The face amount of the bond plus the present value of the stream of interest payments.

When bonds are sold at a discount, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount ov...

Higher than the effective interest amount every year.
Higher than the effective interest amount in the early years and less than the effective interest amount in the later years.
Less than the effective interest amount in the early years and more than the effective interest amount in the later years.
Less than the effective interest amount every year.

When bonds are sold at a premium, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount ove...

Higher than the effective interest amount in the early years and less than the effective interest amount in the later years.
Less than the effective interest amount in the early years and more than the effective interest amount in the later years.
Higher than the effective interest amount every year.
Less than the effective interest amount every year.

Bonds were issued at a discount. In the bond amortization schedule:

The interest expense is less with each successive interest payment.
The total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid.
The outstanding balance (book value) of the bonds declines eventually to face value.
The reduction in the discount is less with each successive interest payment.

On January 1, 2011, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were so...

$8,850
$10,000
$10,620
$12,000

On January 1, 2011, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature o...

$80,000.
$82,000.
$78,000.
$89,000.

On January 1, 2011, an investor paid $291,000 for bonds with a face amount of $300,000. The stated rate of interest is 8% while the current market rat...

$23,280
$29,100.
$24,000.
$30,000.

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a ...

Equal to $500,000.
More than $500,000.
Less than $500,000.
The answer cannot be determined from the information provided.

Zero-coupon bonds

offer a return in the form of a deep discount off the face value.
result in zero interest expense for the issuer.
result in zero interest revenue for the investor.
are reported as shareholdersâ€™ equity by the issuer.

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Less the present value of all future interest payments at the rate of interest stated on the bond.
Plus the present value of all future interest payments at the rate of interest stated on the bond.
Plus the present value of all future interest payments at the market (effective) rate of interest.
Less the present value of all future interest payments at the market (effective) rate of interest.

On January 31, 2011, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2010, and mature on December 31...

$18,000.
$36,000.
$54,000.
$48,000.

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond a...

3%.
4%.
6%.
8%.

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond a...

3%.
4%.
6%.
8%

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond a...

$700,700.
$600,000.
$351,337.
$100,700.

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond a...

$8,834,770.
$8,686,606.
$8,734,070.
$8,783,433.

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond a...

$1,359,033.
$4,640,967.
$6,000,000.
$7,359,033.

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial...

3%
4%.
6%.
8%.

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial...

3%.
4%.
6%.
8%

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial...

$800,000.
$680,759.
$342,961.
$119,241.

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial...

$11,432,379.
$11,375,350.
$11,316,611.
$11,256,109.

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial...

$6,512,253.
$8,000,000.
$11,256,109.
$11,487,747.

Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay...

At par.
At a premium.
At a discount.
Cannot be determined from the given information.

Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay...

$6.0 million
$12.0 million
$9.0 million
$18.0 million

Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay...

$0
$3,830,535
$5,107,380
$7,661,070

Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay...

$252,369,000.
$256,369,000.
$256,200,000.
$257,030,070.

Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay...

$252,369,000.
$256,369,000.
$256,300,000.
$257,030,000.

During the year, Hamlet Inc. paid $20,000 to have bond certificates printed and engraved, paid $100,000 in legal fees, paid $10,000 to a CPA for regis...

$330,000.
$300,000.
$120,000
$20,000.

Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond carryi...

Understated, understated.
Understated, overstated.
Overstated, understated.
Overstated, overstated.

Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each pays interest at 8%. The current ma...

Both bonds sell for the same amount.
Both bonds sell for more than $100,000.
Bond X sells for more than bond Y.
Bond Y sells for more than bond X

Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each matures in 10 years. Bond X pays 8%...

Both bonds sell for the same amount.
Bond X sells for more than bond Y.
Bond Y sells for more than bond X.
Both bonds sell at a discount.

On June 30, 2011, Hardy Corporation issued $10 million of its 8% bonds for $9.2 million. The bonds were priced to yield 10%. The bonds are dated June ...

$32,000
$40,000
$46,000
$60,000

On January 1, 2011, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds ...

$1,045,000.
$1,040,000.
$987,000.
$982,000.

On January 1, 2011, an investor paid $291,000 for bonds with a face amount of $300,000. The contract rate of interest is 8% while the current market r...

$23,280.
$25,140.
$29,100.
$29,610.

Cramer Company sold 5-year, 8% bonds on October 1, 2011. The face amount of the bonds was $100,000, while the issue price was $102,000. Interest is pa...

$2,000.
$1,900.
$1,778.
$2,040.

In each succeeding payment on an installment note:

The amount of interest paid increases.
The amount of principal paid increases.
The amount of interest paid is unchanged.
The amounts paid for both interest and principal increase proportionately.

When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:

The invoice price.
The wholesale price.
The present value of cash outflows discounted at the stated rate.
The present value of the note payments discounted at the market rate.

When the interest payment dates are March 1 and September 1, and notes are issued on July 1, the amount of interest expense to be accrued at December ...

Not be required.
Be for six months.
Be for four months.
Be for ten months.

When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:

Is treated as a current liability at the exchange date.
Is recorded as interest revenue at the exchange date.
Is recorded as interest receivable at the exchange date.
Is credited to sales revenue at the exchange date.

AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction:

If fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest.
Both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable.
The note is recorded at its face amount unless the fair value of the machine is readily available.

To evaluate the risk and quality of an individual bond issue, savvy investors rely heavily on:

Bond ratings provided by financial investment services such as Moodyâ€™s.
Newspaper articles.
Bond interest payments.
The companyâ€™s audit report.

Which of the following indicates the margin of safety provided to creditors?

Rate of return on shareholdersâ€™ equity.
Times interest earned ratio.
Gross margin.
Debt to equity ratio.

Bonds payable should be reported as a long-term liability in the balance sheet of the issuing corporation at the:

Face amount price less any unamortized discount or plus any unamortized premium.
Current bond market price.
Face amount less any unamortized premium or plus any unamortized discount.
Face amount less accrued interest since the last interest payment date

The unamortized balance of discount on bonds payable is reported in the balance sheet as:

A prepaid expense.
An expense account.
A current liability.
A contra-liability.

Eagle Company issued ten-year bonds at 96 during the current year. In the year-end financial statements, the discount should be:

Deducted from bonds payable.
Added to bonds payable.
Included as an expense in the year of issue.
Reported as a deferred charge.

Liberty Company issued ten-year bonds at 105 during the current year. In the year-end financial statements, the premium should be:

Reported as an intangible asset.
Included in revenue for the year of sale.
Deducted from bonds payable.
Added to bonds payable.

Red Corp. has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1. Not including any indirect effects on earnings, the immediate impac...

Increase Increase
Decrease Decrease
Increase Decrease
Decrease Increase

Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellowâ€™s: Return on Asse...

Yes Yes
No No
Yes No
No Yes

The times interest earned ratio indicates

the margin of safety provided to creditors.
the extent of "trading on the equity" or financial leverage.
profitability without regard to how resources are financed.
the effectiveness of employing resources provided by owners.

The debt to equity ratio indicates

The rate of return on assets indicates

The rate of return on shareholdersâ€™ equity indicates

Heidi Aurora Imports issued shares of the companyâ€™s Class B stock. Heidi Aurora Imports should report the stock in the companyâ€™s stateme...

among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.
as equity unless the shares are mandatorily redeemable.
as equity unless the shares are redeemable at the option of the issuer.
among liabilities unless the shares are mandatorily redeemable.

On January 1, 2011, Ozark Minerals issued $10 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each...

debit discount on bonds payable $100,000.
credit premium on bonds payable $100,000.
credit equity $100,000.
credit bonds payable $10,100,000.

Patrick Roch International issued 5% bonds convertible into shares of the companyâ€™s common stock. Upon issuance, Patrick Roch International sho...

the proceeds of the bond issue as part debt and part equity.
the proceeds of the bond issue entirely as debt.
the proceeds of the bond issue entirely as equity.
the proceeds of the bond issue entirely as debt if the bonds are mandatorily redeemable.

When bonds are retired prior to their maturity date:

GAAP has been violated.
The issuing company probably will report an ordinary gain or loss.
The issuing company probably will report an extraordinary gain or loss.
The issuing company will report a non-operating gain or loss.

On June 30, 2011, Blair Industries had outstanding $80 million of 8%, convertible bonds that mature on June 30, 2012. Interest is payable each year on...

$6 million
$8 million
$10 million
$12 million

On February 1, 2010, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2011, at 102. Una...

$0 gain.
$111,800 gain.
$72,800 gain.
$96,000 gain.

On March 31, 2011, MDS, Inc.â€™s bondholders exchanged their convertible bonds for common stock. The carrying amount of these bonds on Ashleyâ�...

Shareholdersâ€™ equity is increased.
Additional paid-in capital is decreased.
Retained earnings is increased.
An extraordinary loss is recognized.

On March 1, 2011, Doll Co. issued 10-year convertible bonds at 106. During 2014, the bonds were converted into common stock when the market price of D...

A liability for the entire proceeds.
Paid-in capital for the entire proceeds.
Paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.
A liability for the face amount of the bonds and paid-in capital for the premium over the par value.

When outstanding bonds are converted into common stock, under either the book value method or the market value method, the same amount would be debite...

Yes Yes
No Yes
No No
Yes No

When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?

The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.
The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values.
A nominal amount is allocated to the warrants.
All of the proceeds are allocated to the bonds.

On April 1, 2011, Austere Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond was sold with 25 detachable stock warrants, each permittin...

$285,000
$300,000
$315,000
$0

MSG Corporation has $100,000 of 10-year, 6% bonds outstanding on December 31, 2010. The bonds have 3 years remaining to maturity. The unamortized prem...

$667 ordinary loss.
$667 extraordinary loss.
$667 ordinary gain.
$667 extraordinary gain.

Nickel Inc. owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2010. The bonds have 3 years remaining to maturity. The unamortized pr...

$467 ordinary gain.
$467 extraordinary gain.
$467 extraordinary loss.
$467 ordinary loss.

Categories

Long Term Investment MCQs