Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter A2, Problem 1MCQ
To determine
The reasons for considering the investments in equity securities to be “passive”.
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Based on the presumption in IAS 27, the cost method is applied for equity securities when the percentage of ownership of another company is:
Select one:
A. 20% to 50%.
B. Exactly 100%.
C. Less than 20%.
D. Over 50%.
23.
In accounting for minority passive equity investments, the unrealized holding gain or loss on equity securities is recorded on:
Multiple Choice
the balance sheet as a deferred charge in the period of the security price change.
the balance sheet as a separate component of stockholders’ equity.
the income statement in the period of the security price change.
the income statement in the period after the security price change.
Use the following information on a company’s investments in equity securities to answer questions 1- 2 below.
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
6/20/16
$40,000
$35,000
2/10/17
$32,000
Bril Corporation stock
5/1/16
20,000
N/A
11/15/16
26,000
Coy Company stock
8/2/16
16,000
16,500
1/17/17
23,000
1. If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2016 income statement?
2. If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2017 income statement?
Chapter A2 Solutions
Cornerstones of Financial Accounting
Ch. A2 - How do long-term investments differ from...Ch. A2 - Prob. 2DQCh. A2 - Prob. 3DQCh. A2 - Prob. 4DQCh. A2 - Prob. 5DQCh. A2 - Prob. 6DQCh. A2 - Prob. 7DQCh. A2 - How does the equity method discourage the...Ch. A2 - Prob. 9DQCh. A2 - Prob. 10DQ
Ch. A2 - Prob. 11DQCh. A2 - Prob. 12DQCh. A2 - Prob. 13DQCh. A2 - Prob. 14DQCh. A2 - Prob. 15DQCh. A2 - Prob. 1MCQCh. A2 - Prob. 2MCQCh. A2 - Prob. 3MCQCh. A2 - Prob. 4MCQCh. A2 - Prob. 5MCQCh. A2 - Prob. 6MCQCh. A2 - Prob. 7MCQCh. A2 - Prob. 8MCQCh. A2 - Prob. 9MCQCh. A2 - Prob. 10MCQCh. A2 - Prob. 11MCQCh. A2 - When the market value of a companys...Ch. A2 - Prob. 13MCQCh. A2 - Prob. 14MCQCh. A2 - Prob. 15MCQCh. A2 - Prob. 16MCQCh. A2 - Prob. 17ECh. A2 - Trading Securities Pear Investments began...Ch. A2 - Prob. 19ECh. A2 - Prob. 20ECh. A2 - Adjusting the Allowance to Adjust Trading...Ch. A2 - Prob. 22ECh. A2 - Prob. 23ECh. A2 - Prob. 24ECh. A2 - Prob. 25ECh. A2 - Prob. 26ECh. A2 - Prob. 27ECh. A2 - Prob. 28ECh. A2 - Prob. 29ECh. A2 - Prob. 30E
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- Which of the following statements is false? Group of answer choices Stocks are long-term securities issued by corporations. Common stock is the residual interest in the firm and gives the owner dividend rights, voting rights, liquidation rights, and preemptive rights. Common stock promises a dividend payment but usually does not give voting rights. Bonds are less risky than stocks.arrow_forwardWhen a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. The investor should always use the equity method to account for its investment. The investor should always use the fair value method to account for its investment.arrow_forwardA firm’s preferred stock often sells at yields below its bonds because:a. Preferred stock generally carries a higher agency rating.b. Owners of preferred stock have a prior claim on the firm’s earnings.c. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.d. Corporations owning stock may exclude from income taxes most of the dividend income they receive.arrow_forward
- If the combined market value of equity investment at fair value through profit or loss at the end of the year is more than the market value of the same portfolio of trading securities at the beginning of the year, the difference should be accounted for by: a debit to equity investment O reporting an unrealized loss in security investment in the stockholders' equity section of the balance sheet a footnote to the financial statements reporting an unrealized loss in security investments in the income statement O reporting an unrealized gain in security investments in the income statementarrow_forwardIn calculating earnings per share, a company uses the treasury stock method when a. it recognizes the assumed impact of exercising outstanding warrants. b. it develops a methodology to handle the premium paid on exercised share options. c. it needs to value the cash received for a convertible bond. d. it needs to value treasury stock repurchased during the year.arrow_forwardFor which of the following purposes is it LEAST logical for a company to issue equity securities on the primary market? For capital raising For liquidity improvement For increasing the return on equity None of the options. All of the given purposes support primary shares issuance.arrow_forward
- In what way is a preferred stock usually more similar to a bond than to a common stock? O a. Preferred stockholders are more risky than common stocks O b. Preferred stockholders elect the board of directors of the organization O c. Preferred bondholders participate in the growth of the company through increases in dividends and stock prices O d. Preferred stockholders are typical entitled fixed payments O e. If the company were to go into liquidation, preferred stockholders will be entitled to payments after common stockholders are paid-offarrow_forwardPreferred stock is similar to a bond because: Group of answer choices it has a fixed amount to the investor. it represents an ownership interest. all of these. it has a maturity at which time the corporation repays par value.arrow_forwardAs an investor, you looked at the published list of securities held by an investment company and noted that the price of the stock was less than the market value of the securities held. You immediately decided to purchase shares of the company. What type of investment company was it?arrow_forward
- Which of the following correctly indicates how the issue price of common stock shares would be valued when a corporation makes a follow-on issue? Market forces determine the selling price, as it is marketed by the selling group The highest expected issue price per share that can be obtained while still selling of all of the shares is selected The highest expected issue price per share that can be obtained, regardless of the selling group's ability to market the shares, is selected The market price of existing shares is used as guidancearrow_forwardWhat does the additional paid-in capital account represent?a) The difference between the par and the stated value of common stock.b) The price changes that result for stock trading subsequent to its original issue.c) The market price of all common stock issued.d) The amount by which the original sales price of stock exceeds the par value.arrow_forwardWhich method should be used to account for a 16 % ownership in another company's voting stock , assuming the company buying the stock wants to control the decisions of the other company ? Equity Trading Held - to - maturity Available - for - sale How should a company classify debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included in long - term investments ? trading debt securities never - sell debt securities Oheld - to - maturity debt securities available - for - sale debt securities Under the equity method of accounting for investmentswhat must the company purchasing the shares record each period? percentage of net income ) reported and dividends paid Its percentage of estimated earnings and dividends declared The change in market value of the shares owned NothingNo entries are made in the equity method except at the time of purchase. What effect will transferring investments from the…arrow_forward
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