Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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The carrying amount of a available-for-sale marketable equity securities
portfolio in the balance sheet of a company shall be the aggregate
a. | Cost of the portfolio, whether it is higher than or lower than the aggregate market
value of the portfolio. | b. | Cost of the portfolio, when it is higher than
the aggregate market value of the portfolio. | c. | Market value of the portfolio, whether is is
higher than or lower than the aggregate cost of the portfolio. | d. | Market value of the
portfolio, when it is lower than the aggregate cost of the portfolio. |
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2.
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A security in an available-for-sale ecurities portfolio is transferred to a
trading securities portfolio. The security should be transferred between the corresponding
portfolios at
a. | The book value at date of transfer if higher than the market value at date of
transfer. | b. | The market value at date of transfer, regardless of its cost. | c. | Its cost, regardless
of the market value at date of transfer. | d. | The lower of its cost or market value at date
of transfer. |
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3.
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The following information pertains to Smoke, Inc.'s investment in equity
securities:
- On December 31, 20X1, Smoke reclassified a security, purchased on January 1,
20X1 at a cost of $70,000, and having a $50,000 market value prior to reclassification, from
trading to available-for-sale.
- An available-for-sale security costing $75,000 written down
to $30,000 in 20X0 because of an other-than-temporary impairment of fair value, had a $60,000 market
value on December 31, 20X1. Smoke believes the recovery is permanent.
What is the net
effect of the above items on Smoke's net income for the year ended December 31, 20X1?
a. | No effect | b. | $10,000 increase | c. | $20,000
decrease | d. | $30,000 increase |
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4.
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A debt security is transferred from one category to another. Generally
acceptable accounting principles require that for this particular reclassification (1) the
security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at
the date of transfer currently carried as a separate component of stockholders' equity be
amortized over the remaining life of the security. What type of transfer is being described?
a. | Transfer from trading to available-for-sale | b. | Transfer from
available-for-sale to trading | c. | Transfer from held-to-maturity to
available-for-sale | d. | Transfer from available-for-sale to
held-to-maturity |
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5.
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On its December 31, 2006, balance sheet, Quinn Co. reported its investment in
available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31,
2007, the fair value of the securities was $585,000. What should Quinn report on its 2007 income
statement as a result of the increase in fair value of the investments in 2007?
a. | $0. | b. | Unrealized loss of $15,000. | c. | Realized gain of
$35,000. | d. | Unrealized gain of $35,000. |
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On its December 31, 2007 balance sheet, Klugman Company appropriately reported a
$10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was
no change during 2008 in the composition of Klugman's portfolio of marketable equity securities
held as available-for-sale securities. The following information pertains to that portfolio: 
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6.
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What amount of unrealized loss on these securities should be included in
Klugman's stockholders' equity section of the balance sheet at December 31, 2008?
a. | $30,000. | b. | $20,000. | c. | $10,000. | d. | $0. |
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7.
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The amount of unrealized loss to appear as a component of comprehensive income
for the year ending December 31, 2008 is
a. | $30,000. | b. | $20,000. | c. | $10,000. | d. | $0. |
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8.
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Nola has a portfolio of marketable equity securities which it does not intend to
sell in the near term. How should Nola classify these securities, and how should it report
unrealized gains and losses from these
securities?
Classify as
Report as a
a. | Trading
securities
Component of income
from
continuing operations | b. | Available-for-sale
securities Other comphrensive income | c. | Trading
securities
Other comphrensive income | d. | Available-for-sale
securites Component of income from
continuing operations |
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Oliver Company purchased $400,000 of 10% bonds of
McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1, 2018; interest is payable
each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Oliver Company
uses the effective-interest method and plans to hold these bonds to maturity.
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9.
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On July 1, 2008, Oliver Company should increase its
Held-to-Maturity Debt Securities account for the McGee Co. bonds by
a. | $2,392. | b. | $1,371. | c. | $1,196. | d. | $686. |
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10.
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In 20X1, Cromwell Corporation bought 30,000 shares
of Fleming Corporation's listed stock for $300,000. This stock was not accounted
for by the equity method. In 20X4, when the market value had declined to $200,000, Cromwell
changed its classification of this investment from available-for-sale to trading. In
January 20X5, before Cromwell's 20X4 year-end statements were issued, the market value of the
Fleming stock had risen to $230,000. Based on this information, how much should Cromwell record
as a loss in its determination of net income for 20X4?
a. | $0 | b. | $
30,000 | c. | $ 70,000 | d. | $100,000 |
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