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1.

Steven Co. purchased 30, 10% Johnston Company bonds for $30,000
cash plus brokerage fees of $300. Interest is payable semiannually on
July 1 and January 1. The entry to record the purchase would include
debit to

a.

Debt Investments for $30,000.

b.
c.
d.

Cash for $30,300.

b.
c.
d.

6.

Debt Investments for $30,300.


Investment for $29,700.

When an investor owns between 20% and 50% of the common stock of a
corporation, it is generally presumed that the investor
a.
b.

a.

Cash

b.

Cash
1,130
Debt Investments
Gain on Sale of Debt Investments
Interest Revenue

1,040
60
30

Cash 1,130
Debt Investments
Interest Revenue

1,100
30

Cash
1,100
Debt Investments
Interest Revenue

1,040
60

c.

d.

3.

d.

will prepare consolidated financial statements.


has significant influence on the investee and that the equity
method should be used to account for the investment.

a.
b.
c.
d.

Cost method
Equity method
Combination method
Market method

8. If the equity method is being used, cash dividends received


a.
b.
c.
d.

are credited to the Dividend Revenue account.


require no entry because investee net income has already
been recorded at the proper proportion on the investor's books.
are credited to the Stock Investments account.
are credited to the Revenue from Investment in Stock account.

Answers
1.
4
7

c
b
b

2
5
8

b
c
c

3
6

d
d

If a debt investment is sold, the investment account is


a.
b.
c.
d.

5.

1,100
Debt Investments 1,100

The investment is initially recorded at cost.


The cost includes any brokerage fees.
The accounting for long-term debt investments is similar
to the accounting for temporary debt investments.
The cost includes any accrued interest.

has insignificant influence on the investee and that the cost


method should be used to account for the investment.
should apply the cost method in accounting for the investment.

7. The receipt of dividends on an investment affects the Stock Investment


account when which of the following methods is used?

Which of the following is not a true statement about the accounting


for long-term debt investments?
a.
b.
c.

4.

c.
d.

On January 1, the Burkett Company purchased as an investment a


$1,000, 12% bond for $1,040. The bond pays interest on January 1
and July 1. The bond is sold on October 1 for $1,100 plus accrued
interest. Interest has not been accrued since the last interest payment
date. What is the entry to record the cash proceeds at the time the
bond is sold?

consolidated portfolio.
investment portfolio.
controlling interest.

debited for the book value of the bonds at the sale date.
credited for the cost of the bonds at the sale date.
credited for the fair value of the bonds at the sale date.
debited for the cost of the bonds at the sale date.

When a company holds stock of several different corporations, the


group of securities is identified as a(n)
a.

affiliated investment.

Answers to quiz on June 6, 2002 (corrected)


1
4
7

c
2
b
bad question 5
b
8
b

3
b
a or b 6.
d

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