1.Under the equity method of accounting for long-term investments in common stock, when a dividend is received from the investee company,
the Dividend Revenue account is credited.
the Stock Investments account is increased.
the Stock Investments account is decreased.
no entry is necessary.
2.Which one of the following would not be classified as a short-term investment?
Marketable stock securities
Equity method investments
Marketable debt securities
3.Which of the following is a major difference when accounting for long-term debt investments versus short-term debt investments?
When selling long-term investments, no gain or loss is recognized.
At the end of the year, any unrealized gain or loss on long-term debt investments must be recognized in the stockholders' equity section of the balance sheet.
Interest revenue is not recognized for long-term investments.
For short-term investments, bond premium or discount is not amortized to interest revenue.
4.The balance sheet presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of
discount on bonds payable.
allowance for doubtful accounts.
5.Short-term investments are securities held by a company that are
intended to be converted into cash within the next year.
readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer.
readily marketable and intended to be held until maturity.
6.Reporting investments at fair value is
applicable to stock securities only.
applicable to debt securities only.
applicable to both debt and stock securities.
a conservative approach because only losses are recognized.
7.A typical investment to house excess cash until needed is
stocks of companies in a related industry.
low-risk, highly liquid securities.
8.In accounting for stock investments between 20% and 50%, the _______ method is used.
9.Which of the following is not a true statement regarding short-term debt investments?
The securities usually pay interest.
Investments are frequently government or corporate bonds.
This type of investment must be currently traded in the securities market.
Any bond premium or discount is amortized to interest revenue.
10.If the cost method is used to account for a long-term investment in common stock, dividends received should be
credited to the Stock Investments account.
credited to the Dividend Revenue account.
debited to the Stock Investments account.
recorded only when 20% or more of the stock is owned.