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Int. Acc. II Ch12
Intermediate Accounting, Spiceland 4e
| Question | Answer |
|---|---|
| Both fair values and subsequent growth of the investee are irrelevant for investments in which of the following categories? | Held-to-maturity securities. |
| Investments in securities available for sale are reported at | Fair value on the reporting date |
| All investment securities are initially recorded at: | Cost |
| Holding gains and losses on trading securities are included in earnings because | They measure the success or failure of taking advantage of short-term price changes |
| When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost. | False |
| The income statement reports changes in fair value for which type of securities? | Trading securities |
| Fair value is used as the basis for valuation of a firm's investment securities when: | The investment security is not classified as held-to-maturity |
| Holding gains and losses on trading securities are included in ______. | earnings |
| Unrecognized holding gains and losses for securities available-for-sale are: | Reported as a separate component of the shareholders' equity section of the balance sheet. |
| When applying the equity method, an investor should report dividends from the investee as: | A reduction in the investment account |
| On January 12, Henderson Corporation purchased 4 million shares of Honeycutt Corporation common stock for $73 million and classified the securities as available-for-sale. At the close of the same year, the fair value of the securities is $81 million. Hend | An increase in shareholders' equity of $8 million |
| Evans Company owns 4.5 million shares of stock of Frazier Company classified as available-for-sale. During 2006, the fair value of those shares increased by $9 million. What effect did this increase have on Evans' 2006 financial statements? | Net assets increased. |
| Western Manufacturing Company owns 40% of the outstanding common stock of Eastern Supply Company. During 2006, Western received a $50 million cash dividend from Eastern. What effect did this dividend have on Western's 2006 financial statements? | The investment account decreased |
| The equity method is used when an investor can't control, but can exercise significant influence over the operating and financial policies of the investee. We presume, in the absence of evidence to the contrary, that this is so if: | The investor owns between 20% and 50% of the investee's voting shares |
| The shareholders' equity section of the balance sheet reflects changes in the fair value of securities for which type of securities? | Securities available for sale |
| The rules of FASB Statement No. 115, "Accounting for Certain Debt and Equity Securities," generally apply when the percentage of ownership of another company is: | Less than 20% |
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