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Multiple choice

1. Debt securities that are accounted for at amortized cost, not fair value, are
held-to-maturity debt securities.
trading debt securities.
available-for-sale debt securities.
never-sell debt securities.

2. Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Fair Value Method Equity Method

No Effect Decrease
Increase Decrease
No Effect No Effect
Decrease No Effect

3. On its December 31, 2007 balance sheet, Klugman Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2008 in the composition of Klugman's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio:

Security Cost Fair value at 12/31/08

X $125,000 $160,000

Y 100,000 95,000

Z 175,000 125,000

$400,000 $380,000

What amount of unrealized loss on these securities should be included in Klugman's stockholders' equity section of the balance sheet at December 31, 2008?


4. Barry Corporation earns $240,000 and pays cash dividends of $80,000 during 2007. Glenon Corporation owns 3,000 of the 10,000 outstanding shares of Barry.
What amount should Glenon show in the investment account at December 31, 2007 if the beginning of the year balance in the account was $320,000?


5. Stone Co. owns 4,000 of the 10,000 outstanding shares of Maye Corp. common stock. During 2007, Maye earns $120,000 and pays cash dividends of $40,000.
If the beginning balance in the investment account was $240,000, the balance at December 31, 2007 should be


Solution Summary

The solution explains various multiple choice questions relating to investments