I. MULTIPLE CHOICE $(50$ pts$)$

When a debt security is appropriately carried and reported as securties available for sale, a gain should be reported in the income statement:

A$.$ When the fair value of the security increases.

B$.$ When the present value of the security increases.

C$.$ Only when the Dow Jones Industrial Average increases at least $100$ points.

D$.$ Only when the security is sold.

An investor has a long$-$term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair Value Method

A$.$

Income

B$.$ A reduction of the investment

C$.$ Income

D$.$ A reduction of the investment

Equity Method

Income

A reduction of the investment

A reduction of the investment Income

$3.$ Judd, Inc., owns $35\%$ of Cosby Corporation. During the calendar year $2014,$ Cosby had net earnings of $$300,000$ and paid dividends of $$30,000.$ Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting, reporting $$20,000$ in unrealized holding gains in income statement. What effect would this have on the investment account, net income, and retained earnings, respectively?

A$.$ Understate, overstate, overstate

B$.$ Overstate, understate, understate

C$.$ Overstate, overstate, overstate

D$.$ Understate, understate, understate

$4.$ Kern Company purchased bonds with a face amount of $$800,000$ between interest payment dates. Kern purchased the bonds at $102,$ paid brokerage costs of $$12,000,$ and paid accrued interest for three months of $$20,000.$ The amount to record as the cost of this long$-$term investment in bonds is

A$.$ $$848,000.$

B$.$ $$828,000.$

C$.$ $$816,000.$

D$.$ $$800,000.$

$5.$ On its December $31,2014,$ balance sheet, Trump Company reported its investment in available$-$for$-$sale debt securities$,$ which had cost $$600,000,$ at fair value of $$550,000.$ At December $31,2015,$ the fair value of the securities was $$585,000.$ What should Trump report on its $2015$ income statement as a result of the increase in fair value of the investments in $2015?$

A$.$ $$0.$

B$.$ Unrealized holding loss of $$15,000.$