Chapter 10 Practice Multiple
Choice Questions
Question 1
_____ are debt securities or equity securities in which the investor
holds less than 20% of the voting stock and that the investor plans to
sell in the very near future.
a) Controlling interest investments
b) Held-to-maturity investments
c) Long-Term investments
d) Trading investments
Question 2
Parker owns 30% of Plainfiled Inc. voting stock. How will this
investment be classified?
a) Significant interest investments
b) Controlling interest investments
c) Trading investments
d) Available-for-sale investments
Question 3
On July 1, 20X1, Ben paid $140,000 for 15%, 5 year bonds of Dwell Inc.,
with a face value of $140,000.Ben intends to hold these bonds to
maturity. Which of the following is the correct journal entry to record
the investments in the books of Ben?
A) Long-term Investments – Held to Maturity
$140,000
Cash
$140,000
B) Short-term Investments
$140,000
Cash
$140,000
C) Cash
$140,000
Long-term Investments – Available-for-sale.
$140,000
D) Cash
$140,000
Question 4
On March 1, 20X1, Henry purchased 1,500 shares of Felltren Inc. for
$45.50 per share. The par value per share is $10. On July 15, 20X2,
Henry sold 1,000 of these shares for $85,000. Assume the equity
method is not used. Calculate the gain or loss on disposal
of investment.
a) $45,500
b) $5,000
c) $39,500
d) $16,750
Question 5
80% of the voting stock of Xeon Company is owned by Nexus Inc.
Which of the following is true?
a) Xeon would be considered the parent entity.
b) Financial statements of Xeon would be consolidated into Nexus.
c) Nexus company is the subsidiary company.
d) Xeon will have significant controlling interest in Nexus.
Question 6
On February 28, 20X1, Diversey Inc. reported trading investments
of $175,555. On March 31, 20X2, the company determined the market value
of shares is $145,000. Which of the following is the correct adjusting journal
entry to record the unrealized holding loss or gain?
A) Fair Value Adjustment – Trading
Unrealized Holding Loss – Trading
$30,550
$30,550
B) Unrealized Holding Gain – Trading
Fair Value Adjustment - Trading
C) Unrealized Holding Loss - Trading
Fair Value Adjustment – Trading
D) Fair Value Adjustment - Holding
$30,550
$30,550
$30,550
$30,550
$30,550
Unrealized Holding Gain – Trading
$30,550
Question 7
On February 28, 20X1, Diversey Inc. reported trading investments
of $175,555. On March 31, 20X1, the company determined the market
value of shares is $145,000. At what amount should the
company report these investments on the balance sheet dated March
31, 20X1?
a) $175,555
b) $145,000
c) $30,555
d) $0
Question 8
Which of the following accounting methods is most likely to be used to
report held-to-maturity investments on the balance sheet?
a) Amortized cost
b) Fair value
c) Equity
d) Consolidation
Question 9
Which of the following categories of investments applies only to debt
securities?
a) Controlling interest investments
b) Available-for-sale investments
c) Held-to-maturity investments
d) Significant interest investments