Test Bank For Financial and Managerial Accounting The Cornerstones of Business Decisions International 2nd Edition

Test Bank For Financial and Managerial Accounting The Cornerstones of Business Decisions International 2nd Edition

Appendix 2—Investments

TRUE/FALSE

1. Securities issued by a corporation as a form of ownership in the business, such as common stock and preferred stock, are called equity securities.

ANS:  T                    PTS:   1                    DIF:    Easy               OBJ:   A2-1

NAT:  AICPA FN-Reporting | AACSB Communication | ACBSP-APC-21-Corporate Investments Accounting

2. The equity method of accounting is used if the investor owns between 20-50% of another company and the investor is able to exert influence over the other company.

ANS:  T                    PTS:   1                    DIF:    Easy               OBJ:   A2-1

NAT:  AICPA FN-Reporting | AACSB Communication | ACBSP-APC-21-Corporate Investments Accounting

3. Debt security exists when another entity owes the security holder some combination of interest and principal.

ANS:  T                    PTS:   1                    DIF:    Easy               OBJ:   A2-1

NAT:  AICPA FN-Reporting | AACSB Communication | ACBSP-APC-21-Corporate Investments Accounting

4. If the investor owns over 50 percent of the outstanding common stock, the investor is deemed to have control over the operating and financial policies of the investee.

ANS:  T                    PTS:   1                    DIF:    Easy               OBJ:   A2-1

NAT:  AICPA FN-Reporting | AACSB Communication | ACBSP-APC-21-Corporate Investments Accounting