Learning Objective E-1 1) To be classified as a current asset, an investment must either be liquid or the investor must intend to use it to pay a current liability. Answer: FALSE Diff: 2 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement, Reporting 2) One reason a company invests in securities of other companies is because they may have a long-term strategic plan. Answer: TRUE Diff: 1 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement, Reporting 3) GAAP rules for investments differ based on whether an investment is composed of equity securities or debt securities. Answer: TRUE Diff: 1 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement, Reporting 4) Equity securities are investments in bonds or notes payable. Answer: FALSE Diff: 1 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement, Reporting 5) If an investor owns 25% of the voting stock of an investee, the investor has controlling influence. Answer: FALSE Diff: 1 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement, Reporting 2 Copyright © 2022 Pearson Education, Inc. 6) Investments with insignificant influence: A) are reported at amortized cost on the balance sheet. B) are more liquid than cash. C) are reported at historical cost on the balance sheet. D) are reported using the fair value method on the balance sheet. Answer: D Diff: 2 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement, Reporting 7) Investments with insignificant influence are reported on the: A) income statement using fair value method. B) balance sheet at cost. C) balance sheet using fair value method. D) income statement at cost. Answer: C Diff: 2 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Reporting 8) To be classified as a current asset, an investment must meet which of the following criteria: A) the investment must be liquid. B) the investor must intend to either convert the investment to cash within one year or current operating cycle, whichever is longer, or use it to pay a current liability. C) the investment must be easily convertible to cash. D) all of the above. Answer: D Diff: 2 LO: E-1 AACSB: Reflective Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Decision Modeling 9) Marathon Corporation owns 500 shares of Mini Company's common stock. Mini Company has 100,000 shares of common stock outstanding. Marathon Corporation is the ________ and Mini Company is the ________. A) investee; investor B) investor; investee C) parent company; subsidiary company D) controlling company; noncontrolling company Answer: B Diff: 2 LO: E-1 AACSB: Analytical Thinking AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement