Test Bank for - Test Bank, Chapter 1 1-1 TEST BANK CHAPTER 1 I...

Test Bank for Advanced Accoun�ng, 5 th

Edi�on, 5e By Susan Hamlen (All Chapters, 100% Original Verified, A+ Grade) 1 / 4

©Cambridge Business Publishers, 20 23 Test Bank, Chapter 1 1-1

TEST BANK

CHAPTER 1

Intercorporate Investments: An Overview

MULTIPLE CHOICE

1. Topic: Accounting for equity securities with no significant influence

LO 1 A company invests $350,000 in equity securities on November 30, 2023, and classifies them as investments with no significant influence . At December 31, 2023, the company’s year-end, the securities have a fair value of $345,000. On February 1, 2024, the company sells the securities for $360,000.Which statement is true regarding how this information is reported in the company’s financial statements?

• The company’s December 31, 2023 balance sheet reports the securities at $350,000,

and a loss of $5,000 is reported on the 2023 income statement.

• The company’s December 31, 2023 balance sheet reports the securities at $345,000,

and a gain of $10,000 is reported on the 2024 income statement.

• The company’s December 31, 2023 balance sheet reports the securities at $345,000,

and a gain of $15,000 is reported on the 2024 income statement.

• The company’s December 31, 2023 balance sheet reports the securities at $350,000,

and no gain or loss appears on the 2023 income statement.

ANS: c

2. Topic: Accounting for equity securities with no significant influence

LO 1 Which statement is true concerning the reporting for equity investments with no significant influence?

• They are reported at fair value, with any changes in value reported in income.
• They are categorized as either trading or available-for-sale, with unrealized changes in

the value of trading securities reported in income, and unrealized changes in the value of AFS securities reported in OCI.

• They are reported at cost, with unrealized changes in value reported in OCI.
• They are reported at fair value, with unrealized changes in value reported in OCI.

ANS: a 2 / 4

Stuvia.com - The Marketplace to Buy and Sell your Study Material©Cambridge Business Publishers, 2023 1-2 Advanced Accounting, 5th Edition Use the following information on a company’s investments in equity securities with no significant influence to answer Questions 3 and 4. The company’s accounting year ends December 31.

Investment Date of Acquisition Cost Fair Value

12/31/23

Date Sold Selling Price Colt Company stock 9/20/23 $38,000 $37,000 2/10/24 $42,000 Dana Company stock 10/2/23 14,000 14,200 1/17/24 13,000

3.

Topic: Accounting for equity investments with no significant influence

LO 1 What amount is reported for gain or loss on these securities in 2023 income?

• No gain or loss
• $800 loss
• $3,000 gain
• $1,000 loss

ANS: b

($37,000 – $38,000) + ($14,200 – $14,000) = $800 loss

4. Topic: Accounting for equity investments with no significant influence

LO 1 What amount is reported for gain or loss on these securities in 20 24 income?

• No gain or loss
• $3,000 gain
• $3,800 gain
• $4,000 gain

ANS: c

($42,000 – $37,000) + ($13,000 – $14,200) = $ 3,800 gain

5. Topic: Accounting for equity investments with no significant influence

LO 1 A company buys an equity investment for $100 in 2024. The investment has no significant influence. At the end of 2024, the company still holds the investment and it has a market value of $105. In 2025, the company sells the investment for $115.

How is this information reported in the company’s 2024 and 2025 income statements?

• $5 gain on the 2024 income statement; $10 gain on the 2025 income statement.
• Does not appear on the 2024 income statement; $15 gain on the 2025 income statement.
• Does not appear on the 2024 income statement; $10 gain on the 2025 income statement.
• $15 gain on the 2024 income statement; does not appear on the 2025 income statement.

ANS: a

$105 - $100 = $5 gain in 2024; $115 - $105 = $10 gain in 2025.Stuvia.com - The Marketplace to Buy and Sell your Study Material

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Stuvia.com - The Marketplace to Buy and Sell your Study Material ©Cambridge Business Publishers, 20 23 Test Bank, Chapter 1 1-3

6. Topic: Accounting for equity investments with no significant influence

LO 1 On December 20, 2024, a company pays $40,000 for an investment in equity securities with no significant influence. On December 31, 2024, the company’s year-end, the stock has a market value of $37,000. The company sells the stock in 2025 for $44,000.

On its income statement, the company reports:

• A loss of $3,000 in 2024, and a gain of $7,000 in 2025
• No gain or loss in 2024, and a gain of $4,000 in 2025
• A gain of $4,000 in 2024, and no gain or loss in 2025
• No gain or loss in 2024, and a gain of $7,000 in 2025

ANS: a

($37,000 - $40,000) = $3,000 loss in 2024; ($44,000 - $37,000) = $7,000 gain in 2025.

7. Topic: Accounting for equity investments with no significant influence

LO 1 On October 25, 2024, a company pays $35,000 for an investment in equity securities, with no significant influence. On December 31, 2024, the company’s year-end, the stock has a market value of $36,000. The company sells the stock in 2025 for $32,000. How is the company’s 2024 other comprehensive income affected by the above transactions in each year?

• Decrease of $2,000 in 2024, increase of $2,000 in 2025
• Decrease of $2,000 in 2024, increase of $4,000 in 2025
• No effect in 2024, increase of $2,000 in 2025
• No effect on OCI in either year.

ANS: d

8. Topic: Accounting for equity investments with no significant influence

LO 1 A company has equity investments with no significant influence, purchased for $550,000 and carried at $520,000 at the beginning of 2024. At the end of 2024, the investments have a fair value of $560,000 and are still held by the company. What amount is reported in income and in other comprehensive income for 2024?

Income OCI

• $0 $40,000 gain
• $40,000 gain $0
• $10,000 gain $0
• $0 $10,000 gain

ANS: b

$560,000 - $520,000 = $40,000 gain for 2024, reported in income.

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