CHAPTER 16
INVESTMENTS
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Debt securities include corporate bonds and convertible debt, but not U.S. government
securities.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting and Control: Financial Statement Preparation, IFRS: None
2. Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
3. Unrealized holding gains and losses are recognized in net income for available-for-sale
debt securities.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
4. To classify a debt security as held-to-maturity, the company needs only to have the
positive intent to hold the security to maturity.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
5. Companies do not report changes in the fair value of available-for-sale debt securities as
income until the securities are sold.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
6. The Fair Value Adjustment account has a normal credit balance.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
7. Companies report trading securities at fair value, with unrealized holding gains and losses
reported in net income.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
8. Equity security holdings between 20 and 50 percent indicate that the investor has a
controlling interest over the investee.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
9. The Unrealized Holding Gain/Loss—Income account for equity securities is reported as a
part of other comprehensive income.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
,16 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. Significant influence over an investee may be indicated by material intercompany trans-
actions and interchange of managerial personnel.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
11. The accounting profession has concluded that an investment of 50 percent or more of the
voting stock of an investee should lead to a presumption of only significant influence over
an investee.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
12. All cash dividends received by an investor from the investee decrease the investment’s
carrying value under the equity method.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
13. Under the fair value method, the investor reports as revenue its share of the net income
reported by the investee.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
14. A controlling interest occurs when one corporation acquires a voting interest of more than
50 percent in another corporation.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
15. Companies may not use the fair value option for investments that follow the equity method
of accounting.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
16. Changes in the fair value of a company's available-for-sale debt instruments are included
as part of earnings in any given period.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
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.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
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.
Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
19. If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*20. If a company purchases a forward contract to purchase shares at a specified price at a
specified date in the future, it has the right but not the obligation to buy the shares.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, Investments 16 - 3
*21. Options contracts and forward contracts are considered to be derivatives because the
values of these financial instruments are derived from the values of other assets.
Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*22. Companies use cash flow hedges to offset the risk from fluctuations in foreign exchange
rates.
Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*23. A callable bond is an example of a hybrid security with an embedded derivative.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*24. The embedded derivative in a convertible bond is the option to convert the bond to shares
of common stock.
Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*25. Both the purchaser and the issuer of a convertible bond bifurcate the option component.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*26. Unrealized gains and losses from changes in the value of futures contracts are reported
as part of other comprehensive income.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*27. One requirement related to fair value disclosure is that both the cost and the fair value of
all instruments be reported in the notes to the financial statements.
Ans: T, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
28. 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.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
29. A correct valuation for debt securities 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 answers are correct.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, 16 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
30. Which of the following securities could be classified as held-to-maturity?
a. Redeemable preferred stock
b. Warrants
c. Municipal bonds
d. Treasury stock
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
31. Unrealized holding gains or losses that are recognized in income are from debt securities
classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. None of these answers are correct.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
P
32. 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 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 is 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.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Recordkeeping, IFRS: None
S
33. 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.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
34. Debt 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. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
INVESTMENTS
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Debt securities include corporate bonds and convertible debt, but not U.S. government
securities.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting and Control: Financial Statement Preparation, IFRS: None
2. Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
3. Unrealized holding gains and losses are recognized in net income for available-for-sale
debt securities.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
4. To classify a debt security as held-to-maturity, the company needs only to have the
positive intent to hold the security to maturity.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
5. Companies do not report changes in the fair value of available-for-sale debt securities as
income until the securities are sold.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
6. The Fair Value Adjustment account has a normal credit balance.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
7. Companies report trading securities at fair value, with unrealized holding gains and losses
reported in net income.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
8. Equity security holdings between 20 and 50 percent indicate that the investor has a
controlling interest over the investee.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
9. The Unrealized Holding Gain/Loss—Income account for equity securities is reported as a
part of other comprehensive income.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
,16 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. Significant influence over an investee may be indicated by material intercompany trans-
actions and interchange of managerial personnel.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
11. The accounting profession has concluded that an investment of 50 percent or more of the
voting stock of an investee should lead to a presumption of only significant influence over
an investee.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
12. All cash dividends received by an investor from the investee decrease the investment’s
carrying value under the equity method.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
13. Under the fair value method, the investor reports as revenue its share of the net income
reported by the investee.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
14. A controlling interest occurs when one corporation acquires a voting interest of more than
50 percent in another corporation.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
15. Companies may not use the fair value option for investments that follow the equity method
of accounting.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
16. Changes in the fair value of a company's available-for-sale debt instruments are included
as part of earnings in any given period.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
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.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
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.
Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
19. If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*20. If a company purchases a forward contract to purchase shares at a specified price at a
specified date in the future, it has the right but not the obligation to buy the shares.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, Investments 16 - 3
*21. Options contracts and forward contracts are considered to be derivatives because the
values of these financial instruments are derived from the values of other assets.
Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*22. Companies use cash flow hedges to offset the risk from fluctuations in foreign exchange
rates.
Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*23. A callable bond is an example of a hybrid security with an embedded derivative.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*24. The embedded derivative in a convertible bond is the option to convert the bond to shares
of common stock.
Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*25. Both the purchaser and the issuer of a convertible bond bifurcate the option component.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*26. Unrealized gains and losses from changes in the value of futures contracts are reported
as part of other comprehensive income.
Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
*27. One requirement related to fair value disclosure is that both the cost and the fair value of
all instruments be reported in the notes to the financial statements.
Ans: T, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
28. 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.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
29. A correct valuation for debt securities 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 answers are correct.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, 16 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
30. Which of the following securities could be classified as held-to-maturity?
a. Redeemable preferred stock
b. Warrants
c. Municipal bonds
d. Treasury stock
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
31. Unrealized holding gains or losses that are recognized in income are from debt securities
classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. None of these answers are correct.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
P
32. 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 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 is 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.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Recordkeeping, IFRS: None
S
33. 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.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
34. Debt 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. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
