Advanced Accounting 3e Susan Hamlen, Ronald Huefner, James Largay All Chapters, Original , Complete And Study material 851pages LEARNEXAMS

CHAPTER 1 Intercorporate Investments: An Overview MULTIPLE CHOICE 1. Topic: Accounting for trading securities LO 1 A company invests $500,000 in equity securities on April 30, 2016, and classifies them as trading securities. At December 31, 2016, the company’s year-end, the securities have a fair value of $495,000. On February 1, 2017, the company sells the securities for $520,000. Which statement is true regarding how this information is reported in the company’s financial statements? a. The company’s 2016 balance sheet reports the securities at $500,000, and a loss of $5,000 is reported on the 2016 income statement. b. The company’s 2016 balance sheet reports the securities at $495,000, and a gain of $20,000 is reported on the 2017 income statement. c. The company’s 2016 balance sheet reports the securities at $495,000, and a gain of $25,000 is reported on the 2017 income statement. d. The company’s 2016 balance sheet reports the securities at $500,000, and no gain or loss appears in the 2016 financial statements. ANS: c Use the following information on a company’s investments in equity securities to answer Questions 2-5. The company’s accounting year ends December 31. Investment Date of Acquisition Cost Fair Value 12/31/16 Date Sold Selling Price Ajax Company stock 9/20/16 $38,000 $39,000 2/10/17 $42,000 Brill Company stock 10/2/16 14,000 13,900 1/17/17 13,000 2. Topic: Accounting for trading securities LO 1 If the above investments are categorized as trading securities, what amount is reported for gain