Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
Appendix E: Investments
Learning Objective E-1
1) To be classified as a current asset, an investment must either be liquid or the investor must intend to
use it to pay a current liability.
Answer: FALSE
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) One reason a company invests in securities of other companies is because they may have a long-term
strategic plan.
Answer: TRUE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) GAAP rules for investments differ based on whether an investment is composed of equity securities or
debt securities.
Answer: TRUE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) Equity securities are investments in bonds or notes payable.
Answer: FALSE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) If an investor owns 25% of the voting stock of an investee, the investor has controlling influence.
Answer: FALSE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
1
,Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
6) Investments with insignificant influence:
A) are reported at amortized cost on the balance sheet.
B) are more liquid than cash.
C) are reported at historical cost on the balance sheet.
D) are reported using the fair value method on the balance sheet.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Measurement, Reporting
7) Investments with insignificant influence are reported on the:
A) income statement using fair value method.
B) balance sheet at cost.
C) balance sheet using fair value method.
D) income statement at cost.
Answer: C
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
8) To be classified as a current asset, an investment must meet which of the following criteria:
A) the investment must be liquid.
B) the investor must intend to either convert the investment to cash within one year or current operating
cycle, whichever is longer, or use it to pay a current liability.
C) the investment must be easily convertible to cash.
D) all of the above.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
9) Marathon Corporation owns 500 shares of Mini Company's common stock. Mini Company has
100,000 shares of common stock outstanding. Marathon Corporation is the ________ and Mini Company
is the ________.
A) investee; investor
B) investor; investee
C) parent company; subsidiary company
D) controlling company; noncontrolling company
Answer: B
Diff: 2
LO: E-1
AACSB: Analytical Thinking
2
,Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) When an investment is readily convertible to cash and the investor plans to convert the investment
to cash within one year, the investment is reported on the balance sheet as:
A) a current asset.
B) a long-term asset.
C) stockholders' equity.
D) a cash equivalent.
Answer: A
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Long-term investments include:
A) stocks and bonds that are not liquid or readily convertible to cash.
B) securities that the investor expects to hold longer than one year or operating cycle, whichever is
longer.
C) securities reported in the non-current asset section of the balance sheet.
D) all of the above.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Measurement
12) Mason Corporation owns 500 shares of Mini Company's common stock. Mini Company has 100,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
Answer: D
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
13) Mason Corporation owns 1,500 shares of Mini Company's common stock. Mini Company has 2,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
3
, Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
Answer: C
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
14) Mason Corporation owns 500 shares of Mini Company's common stock. Mini Company has 2,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
Answer: B
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
Learning Objective E-2
1) Unrealized gains and losses on equity securities when the investor has insignificant influence are
reported on the income statement.
Answer: TRUE
Diff: 2
LO: E-2
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Cash dividends received on stock investments with less than 20% ownership of the investee should be
credited to the Equity-Method Investment account.
Answer: FALSE
Diff: 2
LO: E-2
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) Investments in equity securities (stock) can be classified as either current or long-term assets
depending on the company's ability and intent to hold or sell them.
Answer: TRUE
Diff: 2
LO: E-2
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4
Appendix E: Investments
Appendix E: Investments
Learning Objective E-1
1) To be classified as a current asset, an investment must either be liquid or the investor must intend to
use it to pay a current liability.
Answer: FALSE
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) One reason a company invests in securities of other companies is because they may have a long-term
strategic plan.
Answer: TRUE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) GAAP rules for investments differ based on whether an investment is composed of equity securities or
debt securities.
Answer: TRUE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) Equity securities are investments in bonds or notes payable.
Answer: FALSE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) If an investor owns 25% of the voting stock of an investee, the investor has controlling influence.
Answer: FALSE
Diff: 1
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
1
,Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
6) Investments with insignificant influence:
A) are reported at amortized cost on the balance sheet.
B) are more liquid than cash.
C) are reported at historical cost on the balance sheet.
D) are reported using the fair value method on the balance sheet.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Measurement, Reporting
7) Investments with insignificant influence are reported on the:
A) income statement using fair value method.
B) balance sheet at cost.
C) balance sheet using fair value method.
D) income statement at cost.
Answer: C
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
8) To be classified as a current asset, an investment must meet which of the following criteria:
A) the investment must be liquid.
B) the investor must intend to either convert the investment to cash within one year or current operating
cycle, whichever is longer, or use it to pay a current liability.
C) the investment must be easily convertible to cash.
D) all of the above.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
9) Marathon Corporation owns 500 shares of Mini Company's common stock. Mini Company has
100,000 shares of common stock outstanding. Marathon Corporation is the ________ and Mini Company
is the ________.
A) investee; investor
B) investor; investee
C) parent company; subsidiary company
D) controlling company; noncontrolling company
Answer: B
Diff: 2
LO: E-1
AACSB: Analytical Thinking
2
,Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) When an investment is readily convertible to cash and the investor plans to convert the investment
to cash within one year, the investment is reported on the balance sheet as:
A) a current asset.
B) a long-term asset.
C) stockholders' equity.
D) a cash equivalent.
Answer: A
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Long-term investments include:
A) stocks and bonds that are not liquid or readily convertible to cash.
B) securities that the investor expects to hold longer than one year or operating cycle, whichever is
longer.
C) securities reported in the non-current asset section of the balance sheet.
D) all of the above.
Answer: D
Diff: 2
LO: E-1
AACSB: Reflective Thinking
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Measurement
12) Mason Corporation owns 500 shares of Mini Company's common stock. Mini Company has 100,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
Answer: D
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
13) Mason Corporation owns 1,500 shares of Mini Company's common stock. Mini Company has 2,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
3
, Test Bank For Financial Accounting 13th Edition
Appendix E: Investments
Answer: C
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
14) Mason Corporation owns 500 shares of Mini Company's common stock. Mini Company has 2,000
shares of common stock outstanding. Mason Corporation is considered to have:
A) insignificant influence.
B) significant influence.
C) controlling influence.
D) noncontrolling influence.
Answer: B
Diff: 2
LO: E-1
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
Learning Objective E-2
1) Unrealized gains and losses on equity securities when the investor has insignificant influence are
reported on the income statement.
Answer: TRUE
Diff: 2
LO: E-2
AACSB: Reflective Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Cash dividends received on stock investments with less than 20% ownership of the investee should be
credited to the Equity-Method Investment account.
Answer: FALSE
Diff: 2
LO: E-2
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) Investments in equity securities (stock) can be classified as either current or long-term assets
depending on the company's ability and intent to hold or sell them.
Answer: TRUE
Diff: 2
LO: E-2
AACSB: Analytical Thinking
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4
