A Gain or Loss on the Sale of a Long-Term

question 162

Multiple Choice

A gain or loss on the sale of a long-term investment using the equity method is calculated by taking the difference between the cash received and:

• A)fair value of the investment.
• B)lower-of-cost-or-market value of the investment.
• C)cost of the investment.
• D)carrying value of the investment.

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Definitions:

Par Value

The face value of a bond or stock as stated by the issuing company.

Semiannual

Occurring twice a year or every six months.

Effective Interest Method

An accounting method for calculating the interest income or expense on a bond or loan to reflect the actual economic rate over the financial instrument's expected life.

Interest Expense

An expense incurred from borrowing money, represented as the cost of interest for the borrowed funds.