Tan Company had these transactions pertaining to stock investments: Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $48,800 cash plus brokerage fees of $1,400. June 1 Received cash dividends of $2 per share on Norton stock. Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600. The entry to record the purchase of the Norton stock would include a (Points : 1) a debit to Stock Investments for $48,800. b credit to Cash for $48,800. c debit to Stock Investments for $50,200. d debit to Investment Expense for $1,400. 4. Tan Company had these transactions pertaining to stock investments: Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $49,800 cash plus brokerage fees of $1,200. June 1 Received cash dividends of $3 per share on Norton stock. Oct. 1 Sold 1,200 shares of Norton stock for $24,000 less brokerage fees of $600.
The entry to record the receipt of the dividends on June 1 would include debit to Stock Investments for $9,000. credit to Dividend Revenue for $9,000. debit to Dividend Revenue for $9,000. credit to Stock Investments for $9,000. 5. Under the equity method, the Stock Investments account is increased when the a investee company reports net income. b investee company pays a dividend. c investee company reports a loss. d stock investment is sold at a gain. 6. The company whose stock is owned by the parent company is called the a controlled company. b subsidiary company. c investee company. d sibling company. 7. Short-term stock investments should be valued on the balance sheet at a the lower of cost or fair value. b the higher of cost or fair value.
c cost. d fair value. 8. In recognizing a decline in the fair value of short-term stock investments, an unrealized loss account is debited because a management intends to realize this loss in the near future. b the securities have not been sold. c the stock market is volatile. d management cannot determine the exact amount of the loss in value. 9. Available-for-sale securities are classified as (Points : 1) a short-term investments only. b long-term investments only. c either short-term or long-term investments. d current assets only. 10. At December 31, 2012, the trading securities for Settle, Inc. are as follows: Security Cost Fair Value X $ 90,000 $ 93,000 Y 150,000 141,000 Z 32,000 29,000 Settle should report the following amount related to the securities in its 2012 income statement: (Points : 2) a $3,000 gain b $9,000 realized loss. c $9,000 unrealized loss. d $12,000 unrealized loss. e none of the above 11. Cooke Corporation sells 400 shares of common stock being held as a short-term investment.
The shares were acquired six months ago at a cost of $55 a share. Cooke sold the shares for $40 a share. The entry to record the sale is a Stock Investments 16,000 Loss on sale of Stock Investments 6,000 Cash 22,000 b Cash 22,000 .Gain on sale of Stock Investment 6,000 Stock Investments 16,000 c Cash 16,000 Loss on sale of Stock Investments 6,000 Stock Investments 22,000 d Cash 16,000 Stock Investments 16,000 none of the above 12. On January 1, 2012, Great Corporation purchased 25% of the common stock outstanding of Long Corporation for $250,000. During 2012, Long Corporation reported net income of $80,000 and paid cash dividends of $40,000. The balance of the Stock Investments-Long account on the books of Great Corporation at December 31, 2010 is (Points : 2) a $250,000. b $290,000. c $330,000. d $260,000.