Question

1. Long-term investments are held for all of the following reasons except to

a.improve operations by making changes to management

b.reduce expenses

c.meet current cash needs

2.

A company uses cash to pay all of the following except

a.All of these choices are correct.

b.depreciation expense

c.interest to creditors

d.dividends to stockholders

d.stabilize the supply of resources

3.Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

True or false?

4.

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

True

False

Answer 1

1. The long term investment is not held to meet current cash needs.

So the answer is Option C.

2. Depreciation is a non-cash expense. The company does not pay anything to claim depreciation as an expense.

So the answer is Option B.

3. The difference between cost and equity method lies in recording the investment and consequently any income received out of such investment. There is no difference in accounting for the sale of investment under both methods.

So the answer is True.

4. The equity method is more appropriate when the purchaser has a significant influence over the investee.

So the answer is False.