Finance Study Guide

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MULTIPLE CHOICE QUESTIONS

Chp 13

31.Corporations invest in other companies for all of the following reasons except to
a.house excess cash until needed.
b.generate earnings.
c.meet strategic goals.
d.increase trading of the other companies’ stock.

32.A typical investment to house excess cash until needed is
a.stocks of companies in a related industry.
b.debt securities.
c.low-risk, highly liquid securities.
d.stock securities.

33.A company may purchase a noncontrolling interest in another firm in a related industry
a.to house excess cash until needed.
b.to generate earnings.
c.for strategic reasons.
d.for speculative reasons.

34.At the time of acquisition of a debt investment,
a.no journal entry is required.
b.the cost principle applies.
c.the Stock Investments account is debited when bonds are purchased.
d.the investment account is credited for its cost plus brokerage fees.

35.Any premium or discount on a long-term debt investment is amortized
a.to interest expense over the remaining term of the bonds.
b.only if the effective-interest method is used.
c.to interest revenue over the remaining term of the bonds.
d.if the investor owns 20% or more of the bonds.

Use the following information for questions 36 – 38.

On January 1, 2003, Sanders Company purchased at face value, a $1,000, 6%, bond that pays interest on January 1 and July 1. Sanders Company has a calendar year end.

36.The entry for the receipt of interest on July 1, 2003, is
a.Cash 30
Interest Revenue 30
b.Cash 60
Interest Revenue 60
c.Interest Receivable 30
Interest Revenue 30
d.Interest Receivable 60
Interest Revenue 60
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