11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
Test Bank
Intermediate Accounting
(14th Edition) –US GAAP
Chapter 17
Investments
Donald E. Kieso
Jerry J. Weygandt
Terry D. Warfield
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,11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
17 - 6 Test Bank for Intermediate Accounting, Fourteenth Edition
TRUE-FALSE—Conceptual
1. Debt securities include corporate bonds and convertible debt, but not U.S. government
securities.
2. Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
3. Unrealized holding gains and losses are recognized in net income for available-for-sale
debt securities.
4. A company can classify a debt security as held-to-maturity if it has the positive intent to
hold the securities to maturity.
5. Companies do not report changes in the fair value of available-for-sale debt securities as
income until the security is sold.
6. The Fair Value Adjustment account has a normal credit balance.
7. Companies report trading securities at fair value, with unrealized holding gains and losses
reported in net income.
8. Equity security holdings between 20 and 50 percent indicates that the investor has a
controlling interest over the investee.
9. The Unrealized Holding Gain/Loss—Equity account is reported as a part of other compre-
hensive income.
10. Significant influence over an investee may be indicated by material intercompany trans-
actions and interchange of managerial personnel.
11. The accounting profession has concluded that an investment of more than 50 percent of
the voting stock of an investee should lead to a presumption of significant influence over
an investee.
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,11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
Investments 17 - 7
12. All dividends received by an investor from the investee decrease the investment’s carrying
value under the equity method.
13. Under the fair value method, the investor reports as revenue its share of the net income
reported by the investee.
14. A controlling interest occurs when one corporation acquires a voting interest of more than
50 percent in another corporation.
15. Companies may not use the fair value option for investments that follow the equity method
of accounting.
16. Changes in the fair value of a company's debt instruments are included as part of
earnings in any given period.
17. If a decline in a security’s value is judged to be temporary, a company needs to write
down the cost basis of the individual security to a new cost basis.
18. A reclassification adjustment is necessary when a company reports realized gains/losses
as part of net income but also shows unrealized gains/losses as part of other
comprehensive income.
19. If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
20. The transfer of securities from trading to available-for-sale and from available-for-sale to
trading has the same impact on stockholders’ equity and net income.
True-False Answers—Conceptual
Item Ans. Item Ans. Item Ans. Item Ans.
1. F 6. F 11. F 16. T
2. T 7. T 12. T 17. F
3. F 8. F 13. F 18. T
4. F 9. T 14. T 19. F
5. T 10. T 15. F 20. T
MULTIPLE CHOICE—Conceptual
21. Which of the following is not a debt security?
a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. All of these are debt securities.
22. A correct valuation is
a. available-for-sale at amortized cost.
b. held-to-maturity at amortized cost.
c. held-to-maturity at fair value.
d. none of these.
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, 11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
17 - 8 Test Bank for Intermediate Accounting, Fourteenth Edition
23. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock.
b. warrants.
c. municipal bonds.
d. treasury stock.
24. Unrealized holding gains or losses which are recognized in income are from securities
classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. none of these.
P
25. When an investor's accounting period ends on a date that does not coincide with an
interest receipt date for bonds held as an investment, the investor must
a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for
the amount of interest accrued since the last interest receipt date.
b. notify the issuer and request that a special payment be made for the appropriate
portion of the interest period.
c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for
the total amount of interest to be received at the next interest receipt date.
d. do nothing special and ignore the fact that the accounting period does not coincide
with the bond's interest period.
S
26. Debt securities that are accounted for at amortized cost, not fair value, are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
S
27. Debt securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses and are included as other comprehensive income and
as a separate component of stockholders' equity are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
S
28. Use of the effective-interest method in amortizing bond premiums and discounts results in
a. a greater amount of interest income over the life of the bond issue than would result
from use of the straight-line method.
b. a varying amount being recorded as interest income from period to period.
c. a variable rate of return on the book value of the investment.
d. a smaller amount of interest income over the life of the bond issue than would result
from use of the straight-line method.
S
29. Equity securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses as other comprehensive income and as a separate
component of stockholders' equity are
a. available-for-sale securities where a company has holdings of less than 20%.
b. trading securities where a company has holdings of less than 20%.
c securities where a company has holdings of between 20% and 50%.
d. securities where a company has holdings of more than 50%.
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Test Bank
Intermediate Accounting
(14th Edition) –US GAAP
Chapter 17
Investments
Donald E. Kieso
Jerry J. Weygandt
Terry D. Warfield
about:blank 1/38
,11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
17 - 6 Test Bank for Intermediate Accounting, Fourteenth Edition
TRUE-FALSE—Conceptual
1. Debt securities include corporate bonds and convertible debt, but not U.S. government
securities.
2. Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
3. Unrealized holding gains and losses are recognized in net income for available-for-sale
debt securities.
4. A company can classify a debt security as held-to-maturity if it has the positive intent to
hold the securities to maturity.
5. Companies do not report changes in the fair value of available-for-sale debt securities as
income until the security is sold.
6. The Fair Value Adjustment account has a normal credit balance.
7. Companies report trading securities at fair value, with unrealized holding gains and losses
reported in net income.
8. Equity security holdings between 20 and 50 percent indicates that the investor has a
controlling interest over the investee.
9. The Unrealized Holding Gain/Loss—Equity account is reported as a part of other compre-
hensive income.
10. Significant influence over an investee may be indicated by material intercompany trans-
actions and interchange of managerial personnel.
11. The accounting profession has concluded that an investment of more than 50 percent of
the voting stock of an investee should lead to a presumption of significant influence over
an investee.
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,11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
Investments 17 - 7
12. All dividends received by an investor from the investee decrease the investment’s carrying
value under the equity method.
13. Under the fair value method, the investor reports as revenue its share of the net income
reported by the investee.
14. A controlling interest occurs when one corporation acquires a voting interest of more than
50 percent in another corporation.
15. Companies may not use the fair value option for investments that follow the equity method
of accounting.
16. Changes in the fair value of a company's debt instruments are included as part of
earnings in any given period.
17. If a decline in a security’s value is judged to be temporary, a company needs to write
down the cost basis of the individual security to a new cost basis.
18. A reclassification adjustment is necessary when a company reports realized gains/losses
as part of net income but also shows unrealized gains/losses as part of other
comprehensive income.
19. If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
20. The transfer of securities from trading to available-for-sale and from available-for-sale to
trading has the same impact on stockholders’ equity and net income.
True-False Answers—Conceptual
Item Ans. Item Ans. Item Ans. Item Ans.
1. F 6. F 11. F 16. T
2. T 7. T 12. T 17. F
3. F 8. F 13. F 18. T
4. F 9. T 14. T 19. F
5. T 10. T 15. F 20. T
MULTIPLE CHOICE—Conceptual
21. Which of the following is not a debt security?
a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. All of these are debt securities.
22. A correct valuation is
a. available-for-sale at amortized cost.
b. held-to-maturity at amortized cost.
c. held-to-maturity at fair value.
d. none of these.
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, 11/18/23, 11:09 PM Intermediate Accounting Chapter 17 Investments Test Bank
17 - 8 Test Bank for Intermediate Accounting, Fourteenth Edition
23. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock.
b. warrants.
c. municipal bonds.
d. treasury stock.
24. Unrealized holding gains or losses which are recognized in income are from securities
classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. none of these.
P
25. When an investor's accounting period ends on a date that does not coincide with an
interest receipt date for bonds held as an investment, the investor must
a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for
the amount of interest accrued since the last interest receipt date.
b. notify the issuer and request that a special payment be made for the appropriate
portion of the interest period.
c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for
the total amount of interest to be received at the next interest receipt date.
d. do nothing special and ignore the fact that the accounting period does not coincide
with the bond's interest period.
S
26. Debt securities that are accounted for at amortized cost, not fair value, are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
S
27. Debt securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses and are included as other comprehensive income and
as a separate component of stockholders' equity are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
S
28. Use of the effective-interest method in amortizing bond premiums and discounts results in
a. a greater amount of interest income over the life of the bond issue than would result
from use of the straight-line method.
b. a varying amount being recorded as interest income from period to period.
c. a variable rate of return on the book value of the investment.
d. a smaller amount of interest income over the life of the bond issue than would result
from use of the straight-line method.
S
29. Equity securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses as other comprehensive income and as a separate
component of stockholders' equity are
a. available-for-sale securities where a company has holdings of less than 20%.
b. trading securities where a company has holdings of less than 20%.
c securities where a company has holdings of between 20% and 50%.
d. securities where a company has holdings of more than 50%.
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