(Multiple Choice)
1. On its December 31, 2006 balance sheet, Fay Company appropriately reported a $2,000 credit balance in its Allowance for Change in Value of Investment. There was no change during 2007 in the composition of Fay€™s portfolio of marketable equity securities held as available for sale. Pertinent data are as follows:

What amount of loss on these securities should be included in Fay€™s income statement for the year ended December 31, 2007?
a. $0
b. $1,500
c. $3,500
d. $5,500

2. A security in a portfolio of available-for-sale securities is transferred to the trading category. The security should be transferred between the corresponding portfolios at a. The book value at date of transfer if higher than the fair value at date of transfer
b. The fair value at date of transfer, regardless of its cost
c. Its cost, regardless of the fair value at date of transfer
d. The lower of its cost or fair value at date of transfer

3. On April 1, 2007, Aldrich Company purchased as an available-for-sale security $200,000 face value, 9% U.S. Treasury notes for $198,500, which included accrued interest of $4,500. The notes mature July 1, 2008, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2007 for $206,500, which included accrued interest of $7,500. Aldrich uses straight-line amortization. In its income statement for the year ended December 31, 2007, what amount should Aldrich report as a gain on the sale of the available-for-sale security?
a. $1,800
b. $5,000
c. $6,500
d. $8,000

4. When the market value of a company€™s portfolio of available-for-sale securities is lower than its cost, the difference should be
a. Accounted for as a liability
b. Disclosed and described in a note to the financial statements but not accounted for
c. Accounted for as a valuation allowance deducted from the asset to which it relates
d. Accounted for as an addition in the shareholders€™ equity section of the balance sheet

5. On January 2, 2007, Portela, Inc. bought 30% of the outstanding common stock of Bracero Corporation for $258,000 cash. Portela accounts for this investment by the equity method. At the date of acquisition of the stock, Bracero€™s property, plant, and equipment had a fair value in excess of its book value of $150,000. Bracero€™s property, plant, and equipment has a remaining life of 10 years. Bracero€™s net income for the year ended December 31, 2007 was $180,000. During 2007, Bracero declared and paid cash dividends of $20,000. On December 31, 2007, Portela should have carried its investment in Bracero in the amount of
a. $258,000
b. $301,500
c. $306,000
d. $312,000

6. Cash dividends declared out of current earnings were distributed to an investor. How will the investor€™s investment account be affected by those dividends under each of the following accounting methods?
Fair Value Method Equity Method
a. Decrease ......... No effect
b. No effect ......... Decrease
c. Decrease ......... Decrease
d. No effect ......... No effect

7. During 2007, Anthony Company purchased securities as a long-term investment and classified them as available for sale. Pertinent data are as follows:

The amount of the holding gain or loss included in Anthony€™s year-end balance sheet should be
a. $0
b. $3,000
c. $9,000
d. $12,000

8. For an available-for-sale securities portfolio included in noncurrent assets, which of the following should be included in net income of the period?
a. Realized gains during the period
b. Unrealized losses during the period
c. Accumulated changes in the valuation allowance
d. Increases in the valuation allowance during the period

9. In 2006, Cromwell Corporation bought 30,000 shares of Fleming Corporation€™s listed stock for $300,000 and classified the investment as available for sale. In 2007, the market value declined to $200,000. In 2008, the market value of the Fleming stock rose to $230,000 and the stock was sold. How much should Cromwell record as a realized gain or loss in its determination of net income for 2008?
a. $0
b. $30,000 gain
c. $70,000 loss
d. $100,000 loss

10. On January 1, 2007, Weaver Company purchased as held-to-maturity debt securities $500,000 face value of Park Corporation€™s 8% bonds for $456,200. The bonds were purchased to yield 10% interest and pay interest annually. The bonds mature on January 1, 2012. Weaver uses the effective interest method of amortization. What amount should Weaver report on its December 31, 2007 balance sheet as an investment in held-to-maturity debt securities?
a. $450,580
b. $456,200
c. $461,820
d.$466,200

Transcribed Image Text:

Market Value at 12/31/07 $ 63,000 Security Cost $ 60,000 45,000 80,000 40,000 78,500 Totals S185,000 $181,500 Market Value at 12/31/07 $ 18,000 30,000 93,000 141,000 Security Cost 20,000 40,000 90,000 $150,000 Totals