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Buy here: http://theperfecthomework.com/for-a-marketable-debt-securities-portfolio-classified-as-held-to-maturity-which-of-the-following-amounts-should-be-included/ For a marketable debt securities portfolio classified as held-to-maturity, which of the following
amounts should be included in the period's net income, assuming the company elects the fair
value option of reporting all of its financial instruments in the portfolio?
I. Unrealized temporary losses during the period.
II. Realized gains during the period.
III. Changes in the valuation allowance during the period.
IV. Unrealized gains during the period.
a. I only
b. I and II
c. I and III
d. I, II, and IV
Problems 5 and 6 are based on the following:
The following data pertains to Tyne Co.'s investments in marketable equity securities:
Fair value
Cost 12/31/Y2 12/31/Y1
Trading $150,000 $155,000 $100,000
Available-for-sale 150,000 130,000 120,000
5. What amount should Tyne report as unrealized holding gain in its year 2 income statement,
assuming Tyne does not elect to use the fair value option to report its investments?
a. $50,000
b. $55,000
c. $60,000
d. $65,000
6. Assume Tyne does not elect the fair value option to report investments. What amount should
Tyne report as net unrealized loss on marketable equity securities at December 31, year 2, in
accumulated other comprehensive income in stockholders' equity?
a. $0
b. $10,000
c. $15,000
d. $20,000
13. On January 2, year 1, Saxe Company purchased 20% of Lex Corporation's common
stock for $150,000. Saxe Corporation intends to hold the stock indefinitely. This investment did
not give Saxe the ability to exercise significant influence over Lex. During year 1 Lex reported net
income of $175,000 and paid cash dividends of $100,000 on its common stock. There was no
change in the fair value of the common stock during the year. The balance in Saxe's investment
in Lex Corporation account at December 31, year 1 should be
a. $130,000
b. $150,000
c. $165,000
d. $185,000
1. On January 3, year 1, Falk Co. purchased 500 shares of Milo Corp. common stock for
$36,000. On December 2, year 3, Falk received 500 stock rights from Milo. Each right entitles the
holder to acquire one share of stock for $85. The market price of Milo's stock was $100 a share
immediately before the rights were issued, and $90 a share immediately after the rights were
issued. Falk sold its rights on December 3, year 3, for $10 a right. Falk's gain from the sale of the
rights is
a. $0
b. $1,000
c. $1,400
d. $5,000
2. An increase in the cash surrender value of a life insurance policy owned by a company
would be recorded by
a. Decreasing annual insurance expense.
b. Increasing investment income.
c. Recording a memorandum entry only.
d. Decreasing a deferred charge.
3. A company's independent auditor is currently insisting that certain sales made on credit
be reported on the financial statements using the installment sales method rather than traditional
accrual accounting rules. Which of the following is the most logical explanation for that decision?
a. The company cannot estimate the amount of bad debt expense associated with these
sales.
b. The company estimates that bad debts will be 30 percent of all sales.
c. Collection of the accounts receivable will take longer than one year.
d. The earning process on these sales was not substantially completed in the current year.
4. A company sells inventory costing $180,000 to its customers for $300,000 in Year One.
In the following year, inventory costing $275,000 is bought and sold for $500,000. The company
reports its sales using the installment sales method. In this second year, the company collected
$140,000 from its Year One sales and $200,000 from its Year Two sales. What gross profit
should the company report for Year Two?
a. $136,000
b. $144,500
c. $146,000
d. $153,000
5. On January 1, Year One, a company sells inventory costing $36,000 to a customer for
$60,000 on credit. Because of flaws in the design of the inventory, there is significant doubt
about the ultimate collectability of this balance. Thus, the cost recovery method is being applied
by the seller. The entire balance is collected evenly over three years from the beginning of Year
One to the end of Year Three. What amount of profit should be recognized in Year Two?
a. Zero
b. $4,000
c. $8,000
d. $20,000
6. Your company is getting ready to construct a bridge across the Mississippi River. The job
is 10 percent complete after the first year. You are trying to decide between using the percentage
of completion method and the completed contract method. Which of the following would be most
likely to cause you to use the completed contract method?
a. Your company is constructing the bridge for the state of Mississippi.
b. You have constructed buildings previously but not bridges.
c. The 10 percent is a reasonable estimation but not a perfect estimation.
d. The job should take three more years to complete but might take four.
7. A construction company is hired by the state government on January 1, Year One to
build a section of a new highway. The sales price is $100 million and the company estimates that
the work will cost $96 million. During Year One, $18 million is spent on the work and the
company's engineers believe that work costing $72 million is left to be completed. During Year
Two, another $45 million is spent but $42 million of work is now estimated to remain. If the
company is applying the percentage of completion method, what loss should be recognized in
Year Two?
a. $2 million
b. $4 million
c. $5 million
d. $7 million
8. A company sends 10,000 units of its products to one of its customers on December 28,
Year One. The customer has a right to return any of this merchandise within 6 months for a full
refund. The company wants to record this transaction as a sale in Year One. Which of the
following is most likely to necessitate that the recording of the transaction as a sale be delayed
until Year Two?
a. The company can make a reasonable estimation that 25 percent of the units will be
returned.
b. Return of the goods is not contingent on resale.
c. If the goods are stolen from the customer, the obligation is not affected.
d. The company cannot make a reasonable estimation of the number of units that will be
returned.
9. On December 27, Year One, Company A buys merchandise for $40,000 and transfers it
to Company B on consignment. Company B will attempt to sell these items for $60,000 over the
subsequent eight months. If sales are made, Company B retains 10 percent and conveys the
remainder to Company A. Company B makes the first sales in February of Year Two. The
accountant for Company A recorded this transfer as a sale to Company B when shipped. A
perpetual inventory system is in use. Which of the following statements is not true for the balance
sheet of Company A at the end of Year One?
a. Total assets are overstated by $20,000.
b. Total stockholders’ equity is overstated by $20,000.
c. Total inventory is overstated by $20,000.
d. Ending retained earnings is overstated by $20,000.
10. Heyward Construction Company signs an agreement with the state of Maine to build a short
stretch of highway for $42 million. During Year One, $8 million is spent and company officials
anticipate that another $24 million will be needed to complete the work. During Year Two,
another $13 million is spent and current information indicates that another $14 million will be
required to finish the project. The estimations are all viewed as reasonable and officials feel that
the company is capable of finishing the work. What amount of profit should the company
recognize in Year Two?
a. Zero
b. $1,700,000
c. $2,166,667
d. $2,600,000
11. In Year One, the Atonlini Corporation begins to sell specific inventory items with a
four-month right of return. Any merchandise can be returned at that time if the buyer has been
unable to resale it to a third party. On December 1, Year One, goods costing $40,000 are sold to
customers for a total of $50,000. Company officials expect 20 percent of this merchandise to be
returned (unharmed) at the end of March in Year Two. In connection with this transaction, what
amount of profit should Atonlini recognize in Year One?
a. Zero
b. $2,500
c. $8,000
d. $10,000