Affiliate Marketing Secrets

Question 1
The equity method of accounting for investments
Answer a. requires a year-end adjustment to revalue the stock to lower of cost or market
b. requires the investment be increased by the dividends paid by the investee
c. requires the investment be increased by the reported net income of the investee
d. requires the investment to be reported at its original cost
.
5 points
Question 2
Long-term investments are held for all of the listed reasons below except
Answer a. the interest or dividend income
b. long-term gain potential
c. meet current cash needs
d. influence over another business entity
.
5 points
Question 3
Held to maturity securities
Answer a. are reported at fair market value
b. include stocks as well as bonds
c. may be reported as current or noncurrent assets
d. all of the above
.
5 points
Question 4
An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $40.50 per share. What is the amount of gain or loss on the sale?
Answer a. $300 gain
b. $1,550 gain
c. $4,050 gain
d. $300 loss
.
5 points
Question 5
Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the purchase would be:
Answer a. Debit: Investment in Bonds $101,500; Credit: Cash $101,500
b. Debit: Investment in Bonds $100,000 and Interest Receivable $1,500; Credit: Cash $101,500
c. Debit: Investment in Bonds $100,000; Credit: Interest Revenue $1,500 and Cash $98,500
d. Investment in Bonds $100,000; Credit: Cash $100,000
.
5 points
Question 6
Available-for-sale securities are securities that management expects to sell in the future, but are not actively traded for profit.
Answer True
False .
5 points
Question 7
All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except:
Answer a. pressure on regulators to adopt an international set of accounting principles and standards.
b. the ease of applying market values to assets and liabilities.
c. hybrid measurement methods within GAAP that conflict with each other.
d. a greater percentage of total assets existing as receivables and securities.
.
5 points
Question 8
Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the
Answer a. minority interest
b. affiliate
c. parent
d. subsidiary
.
5 points
Question 9
Held-to-Maturity securities
Answer a. are reported at their fair market value on the balance sheet date
b. include both stocks and bonds
c. are primarily purchased to earn interest revenue
d. all of the above
.
5 points
Question 10
Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
Answer a. Dividend Revenue
b. Investment in Vallerio
c. Retained Earnings
d. Dividend Receivables
.
5 points
Question 11
Which of the following statements below is not a reason a company may purchase another company’s stock?
Answer a. sustain the other company’s stock price
b. gaining control of another company’s operations
c. developing or maintaining business relationships
d. earning a return on excess cash
.
5 points
Question 12
The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the
Answer a. cost method
b. market method
c. equity method
d. income method
.
5 points
Question 13
Temporary investments
Answer a. are reported as current assets
b. include cash equivalents
c. do not include equity securities
d. all of the above
.
5 points
Question 14
Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include:
Answer a. Interest Revenue credit $2,000.
b. Investment in Bonds debit $202,000.
c. Cash credit $200,000
d. Interest Receivable debit $2,000
.

A corporation uses the equity method to account for its 40% ownership of another company. The investee earned $20,000 and paid $5,000 in dividends. The investor made the following entries:
D Investment in affiliate 8K
C Equity in earning of affiliate 8K
D Cash 2K
C Dividend revenue 2K
What effect will these entries have on the investor’s statement of financial position?
A. Investment in affiliate overstated, retained earnings understated
B Financial position will be fairly stated.
C Investment in affiliate overstated, retained earning overstated.
D Investment in affiliate understated, retained earning understated.

A corporation uses the equity method to account for its 40% ownership of another company. The investee earned $20,000 and paid $5,000 in dividends. The investor made the following entries:
D Investment in affiliate 8K
C Equity in earning of affiliate 8K
D Cash 2K
C Dividend revenue 2K
What effect will these entries have on the investor’s statement of financial position?
A. Investment in affiliate overstated, retained earnings understated
B Financial position will be fairly stated.
C Investment in affiliate overstated, retained earning overstated.
D Investment in affiliate understated, retained earning understated.