Long Term Investment MCQs

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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...






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






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






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Johnstone Company owns 10,000 shares of Breva Corporation’s stock; Breva currently has 40,000 shares outstanding. During the year, Breva had net in...






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An investor uses the equity method to account for an investment in common stock. The investor’s equity in the earnings of the investee is affected ...






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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...






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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...






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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...






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






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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...






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






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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 ...






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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...






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The investment category for which the investor’s "positive intent and ability to hold" is important is:






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






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






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






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






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Most corporate bonds are:






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






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






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Interest expense is:






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Bonds usually sell at their:






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Straight-line amortization of bond discount or premium:






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An amortization schedule for bonds issued at a premium:






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






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






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






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






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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...






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






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






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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 ...






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Which of the following is INCORRECT?






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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...






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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...






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






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






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






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






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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...






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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...






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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...






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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 ...






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Zero-coupon bonds






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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






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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...






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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%...






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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 ...






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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 ...






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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...






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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...






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In each succeeding payment on an installment note:






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






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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 ...






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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:






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





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






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






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






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






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






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






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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...






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Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow’s: Return on Assets De...






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The times interest earned ratio indicates






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The debt to equity ratio indicates






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The rate of return on assets indicates






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The rate of return on shareholders’ equity indicates






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Heidi Aurora Imports issued shares of the company’s Class B stock. Heidi Aurora Imports should report the stock in the company’s statement of fina...






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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...






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Patrick Roch International issued 5% bonds convertible into shares of the company’s common stock. Upon issuance, Patrick Roch International should r...






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When bonds are retired prior to their maturity date:






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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...






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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...






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On March 31, 2011, MDS, Inc.’s bondholders exchanged their convertible bonds for common stock. The carrying amount of these bonds on Ashley’s book...






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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...






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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...






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






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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...






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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...






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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...