Bakersfield College

ACG 2021

1)All investments in debt and equity securities that dont fit the definitions of the other reporting categories are classified as:

1. 1. Trading securities.
   2. Securities available for sale.
   3. Held-to-maturity securities.
   4. Consolidated securities.

2. Investments in securities available for sale are reported at:
   1. Discounted present value.
   2. Lower of cost or market.
   3. Historical cost.
   4. Fair value on the reporting date.

3. All investment securities are initially recorded at:
   1. Cost.
   2. Present value.
   3. Equity value.
   4. None of these answer choices is correct.

4. Accumulated Other Comprehensive Income in the shareholders' equity section of the balance

sheet reflects changes in the fair value of securities for which type of securities?

1. 1. Securities available for sale.
   2. Trading securities.
   3. Consolidated securities.
   4. Held-to-maturity securities.

5. GAAP regarding accounting for unrealized gains and losses on investments in equity securities will apply to an investment when the percentage of ownership of another company is:
   1. Less than 20%.

b.     20% to 50%.

3. Over 50%.
4. Exactly 100%.

6. When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as:
   1. A return of capital.
   2. A loss.
   3. A deduction from the investment account.
   4. Dividend income.

7. When an equity security is appropriately carried and reported as securities available for sale, a gain should be reported in the income statement:

1. 1. When the fair value of the security increases.
   2. When the present value of the security increases.
   3. Only when the Dow Jones Industrial Average increases at least 100 points.
   4. Only when the security is sold.

8. Investments in securities to be held for an unspecified period of time are reported at:
   1. Historical cost.
   2. Present value.
   3. Lower of cost or market.
   4. Fair value.

9. Unrealized holding gains and losses on securities available for sale would have the following effects on accumulated other comprehensive income:

Gains                Losses

1. 1. Increase         Increase
   2. Decrease       Decrease
   3. Decrease       Increase
   4. Increase         Decrease

10. In the statement of cash flows, inflows and outflows of cash from buying and selling available for sale securities are considered:
    1. Operating activities.

1. 2. Financing activities.
   3. Investing activities.
   4. Noncash financing activities.

11. Unrealized holding gains and losses on securities available for sale would have the following effects on retained earnings:

Gains                Losses

1. 1. Increase         No change
   2. No change    Decrease
   3. No change    No change
   4. Increase         Decrease

12. Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2016. In December, Handy announced $200,000 net income for 2016 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2016 would be:

a.     $ 0.

b.     $28,000.

c.     $56,000.

d.     None of these answer choices is correct.

13. On January 2, 2015, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale. Ranger's net income for the years ended December 31, 2015 and 2016, were $10,000 and $50,000, respectively. During 2016, Ranger declared and paid a dividend of $60,000. There were no dividends in 2015. On December 31, 2015, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2016 income statement as income from this investment?

a.     $26,000.

b.     $ 7,200.

c.     $20,000.

d.     $27,200.

14. Jeremiah Corporation purchased securities during 2016 and classified them as securities available for sale:

All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2016, income statement relative to the portfolio?

a.     $0.

b.     $16,000.

c.     $20,000.

d.     None of these answer choices is correct.

15. Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2013 for $50 per share and classified the investment as securities available for sale. Diamond's market value was

$60 per share on December 31, 2014, and $65 on December 31, 2015. During 2016, Hawk sold all of its Diamond stock at $70 per share. In its 2016 income statement, Hawk would report:

1. 1. A gain of $ 50,000.
   2. A gain of $150,000.
   3. A gain of $200,000
   4. A gain of $300,000.

16. Dim Corporation purchased 1,000 shares of Witt Corporation stock in 2013 for $800 per share and classified the investment as securities available for sale. Witt's market value was $400 per share on December 31, 2014, and $300 on December 31, 2015. During 2016, Dim sold all of its Witt stock at $350 per share. In its 2016 income statement, Dim would report:
    1. A realized gain of $50,000.
    2. A recognition of unrealized losses of $400,000.
    3. A loss on the sale of investments of $450,000.
    4. A trading gain of $50,000 and an unrealized loss of $500,000.

(As part of year-end fair-value adjustment, Dim would remove any previously recorded fair-value adjustment and accumulated other comprehensive income associated with the Witt investment.)

17. On January 1, 2016, Everglade Company purchased the following securities and properly accounted for them as securities available for sale:

All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its 2016 statement of other comprehensive income?

a.     $0.