Chapter 15: Fair Trade

Question 1

Debit Securities

Answer 1

Notes and bond investments that provide interest revenue over a fixed maturity.

Question 2

Equity Securities

Answer 2

The common and preferred stock of a firm

Question 3

Investments

Answer 3

The balance sheet caption used to report long-term investments in stocks not intended as a source of cash in the normal operations of the business.

Question 4

Investor

Answer 4

The company investing in another company’s stock.

Question 5

Investee

Answer 5

The company whose stock is purchased by the investor.

Question 6

Cost Method

Answer 6

A method of accounting for equity investments representing less than 20% of the outstanding shares of the investee. The purchase is at original cost, and any gains or losses upon sale are recognized by the difference between the sale proceeds and the original cost.

Question 7

Equity Method

Answer 7

A method of accounting for an investment in common stock by which the investment account is adjusted for the investor’s share of periodic net income and cash dividends of the investee.

Question 8

Business Combination

Answer 8

A business making an investment in another business by acquiring a controlling share, often greater than 50%, of the outstanding voting stock of another corporation by paying cash or exchanging stock.

Question 9

Parent Company

Answer 9

The corporation owning all or a majority of the voting stock of the other corporation.

Question 10

Subsidiary Company

Answer 10

The corporation that is controlled by a parent company.

Question 11

Consolidated Financial Statements

Answer 11

Financial statements resulting from combining parent and subsidiary statements.

Question 12

Trading Securiteis

Answer 12

Securities that management intends to actively trade for profit.

Question 13

Fair Value

Answer 13

The price that would be received for selling an asset or paying off a liability, often the market price for an equity or debt security.

Question 14

Unrealized Gain or Loss

Answer 14

Changes in the fair value of equity or debt securities for a period.

Question 15

Available- for-Sale Secuities

Answer 15

Securities that management expects to sell in the future but which are not actively traded for profit.

Question 16

Held to Maturity Securities

Answer 16

Investments in bonds or other debt securities that management intends to hold to their maturity.

Question 17

Dividend Yeild

Answer 17

A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.