Managerial Accounting

TEST BANK
CHAPTER 1
Intercorporate Investments: An Overview

MULTIPLE CHOICE

Use the following information on a company’s investments in equity securities to answer questions 1- 4 below. The company’s accounting year ends December 31.

| |Date of acquisition|Cost |Fair value |Date sold |Selling price |
|Investment | | |12/31/10 | | |
|Ajax Company stock |6/20/10 |$40,000 |$36,000 |2/10/11 |$34,000 |
|Bril Corporation stock |5/1/10 | 20,000 |N/A |11/15/10 | 23,000 |
|Coy Company stock |8/2/10 | 16,000 | 19,500 |1/17/11 | 21,000 |

1. Topic: Accounting for trading securities LO 2 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2010 income statement?

a. $3,000 gain b. $2,500 gain c. $4,000 loss d. No gain or loss

ANS: b

2. Topic: Accounting for trading securities LO 2 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2011 income statement?

a. $1,000 loss b. $2,000 gain c. $3,000 gain d. $500 loss

ANS: d

3. Topic: Accounting for AFS securities LO 2 If the above investments are categorized as available-for-sale securities, what amount is reported for gain or loss on securities, on the 2010 income statement?

a. $3,000 gain b. $2,500 gain c. $4,000 loss d. No gain or loss

ANS: a

4. Topic: Accounting for AFS securities LO 2 If the above investments are categorized as available-for-sale securities, what amount is