1. Temporary investments are those that:
A.Are highly liquid.
B.Are held for the purpose of maximizing returns.
C.Management intends to convert to cash as needed.
D.Meet all of these criteria.


2. Financial assets include all of the following except:
A.Cash.
B.A right to receive goods or services from another company.
C.Shares of another company.
D.A right to exchange financial instruments with another company.


3. The primary accounting principle relevant to the acquisition and recording of temporary investments is the:
A.Revenue recognition principle
B.Full disclosure principle.
C.Historical cost principle.
D.Matching principle.


4. The lower of cost and market rule as applied to temporary investments may be calculated:
A.Based on individual securities or on the main categories of securities.
B.Based on the entire portfolio or on the main categories of securities.
C.Based on the entire portfolio or on individual securities.
D.Any of these methods may be used.


5. Temporary investments in bonds are carried:
A.At their face value.
B.At the lower of cost and market.
C.Net of any unamortized premium or discount.
D.At cost plus accrued interest payable.


6. An ownership interest of 30% of the common stock of another corporation should be accounted for using the:
A.Consolidated method.
B.Cost method.
C.Equity method.
D.Fair value method.


7. Long-term investments in bonds are carried:
A.At their face value.
B.At the lower of cost and market.
C.Net of any unamortized premium or discount.
D.At cost plus accrued interest payable.


8. When an investment in a long-term debt security is disposed of before its maturity date:
A.Any difference between the proceeds and the carrying value is deferred and recognized over the remaining period to maturity.
B.Is considered a realized gain or loss and reported in net income.
C.Is charged to Retained Earnings.
D.Is recorded as part of net income if a loss, and deferred and amortized over the period to maturity if a gain.


9. Examples of the ability to exercise significant influence over an investee include all of the following except:
A.Material intercompany transactions.
B.Interchange of managerial personnel.
C.Technological dependency.
D.All of the options are examples of significant influence.


10. Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of:
A.Dividends paid by the investee.
B.Declines in the fair value of the investment.
C.The losses of the investee.
D.All of the options would decrease the investment account.


11. When one corporation acquires a controlling interest in another corporation, the parent records its investment in the subsidiary using:
A.The equity method.
B.Either the consolidation or the equity method.
C.Either the equity or cost method.
D.Either the consolidation or cost method.


12. Which of the following is not a disclosure required under the equity method?
A.The investor's share of the investee's net income.
B.The investor's share of any income or loss from discontinued operations of the investee.
C.The investor's share of any dividends received from the investee.
D.The investor's share of any income or loss from extraordinary items of the investee.


13. The carrying value of long-term investments should be reduced when:
A.The present value of remaining expected cash flows is less than the carrying value of the investment.
B.The market value of the investment is less than its original cost.
C.The carrying value of the investment exceeds the market value of the investment.
D.A decline in the market value of the investment is considered to be other than temporary.


14. Which of the following statements related to presentation and disclosure for long-term investments is incorrect?
A.The basis of valuation should be shown.
B.Investments in companies subject to significant influence may be grouped.
C.Income from companies subject to significant influence should be shown separately.
D.Both the fair value and the carrying value of long-term portfolio investments should be disclosed.


15. Arguments against carrying investments at fair value include all of the following except:
A.The inconsistency that arises between accounting for assets versus liabilities.
B.The subjectivity associated with determining fair value of many investments.
C.It motivates management to make poor business decisions in order to manipulate income.
D.Cost versus benefit considerations.



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