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True or False

This document contains 20 true-false questions related to accounting for investments in debt securities, equity securities, and investments accounted for using the equity method. It also contains 5 additional true-false questions related to international financial reporting standards (IFRS). The questions cover topics such as the classification and accounting for different types of investments, impairment of investments, determining control or significant influence over an investee, and reclassification of investments between categories.

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prins kyla Saboy
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296 views1 page

True or False

This document contains 20 true-false questions related to accounting for investments in debt securities, equity securities, and investments accounted for using the equity method. It also contains 5 additional true-false questions related to international financial reporting standards (IFRS). The questions cover topics such as the classification and accounting for different types of investments, impairment of investments, determining control or significant influence over an investee, and reclassification of investments between categories.

Uploaded by

prins kyla Saboy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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TRUE-FALSE—Conceptual

1. Debt securities include corporate bonds and convertible debt, but not U.S. government
securities.
2. Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
3. Unrealized holding gains and losses are recognized in net income for available-for-sale
debt securities.
4. A company can classify a debt security as held-to-maturity if it has the positive intent to
hold the securities to maturity.
5. Companies do not report changes in the fair value of available-for-sale debt securities as
income until the security is sold.
6. The Fair Value Adjustment account has a normal credit balance.
7. Companies report trading securities at fair value, with unrealized holding gains and losses
reported in net income.
8. Equity security holdings between 20 and 50 percent indicates that the investor has a
controlling interest over the investee.
9. The Unrealized Holding Gain/Loss—Equity account is reported as a part of other comprehensive
income.
10. Significant influence over an investee may be indicated by material intercompany transactions
and interchange of managerial personnel.
11. The accounting profession has concluded that an investment of more than 50 percent of
the voting stock of an investee should lead to a presumption of significant influence over
an investee.

12. All dividends received by an investor from the investee decrease the investment’s carrying
value under the equity method.
13. Under the fair value method, the investor reports as revenue its share of the net income
reported by the investee.
14. A controlling interest occurs when one corporation acquires a voting interest of more than
50 percent in another corporation.
15. Companies may not use the fair value option for investments that follow the equity method
of accounting.
16. Changes in the fair value of a company's debt instruments are included as part of
earnings in any given period.
17. If a decline in a security’s value is judged to be temporary, a company needs to write
down the cost basis of the individual security to a new cost basis.
18. A reclassification adjustment is necessary when a company reports realized gains/losses
as part of net income but also shows unrealized gains/losses as part of other
comprehensive income.
19. If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
20. The transfer of securities from trading to available-for-sale and from available-for-sale to
trading has the same impact on stockholders’ equity and net income.

IFRS QUESTIONS
True/False
1. IFRS requires that gains and losses on non-trading investments be reported directly in equity.
2. Under IFRS, impairment charges related to debt investments may be reversed, but
impairment charges related to equity investments may not be reversed.
3. Reclassification in and out of trading securities is permitted under IFRS, although this type of
reclassification should be rare.
4. IFRS requires that Company A consolidate Company B when it controls and owns at least
50% of Company B.
5. Under IFRS, both the investor and the associate company should follow the same accounting
practices, requiring adjustments be made to the investor’s books in order to prepare financial
information.

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