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Exam 29: Investments

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Question 71

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When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

A) True
B) False

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Question 72

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Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -the market price that would be received if an investment were sold

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Question 73

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Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

The account Unrealized Gain (Loss) on Available-for-Sale Investments should be included on the

On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest. Present entries to record the following transactions: Bee Company: (a)Purchase of bonds on August 1, Year 1.(b)Receipt of first semiannual interest amount on December 31, Year 1.(c)The sale of the bonds on March 1, Year 2.

Match each of the definitions that follow with the appropriate investment term (a-j). -debt and equity securities purchased and sold to earn short-term profits from changes in the market price A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

Prepare the journal entries for the following transactions for Batson Co.(a)Batson Co. purchased 1,200 shares of the total of 100,000 outstanding shares of Michael Corp. stock for $20.75 per share plus a $70 commission.(b)Michael's total earnings for the period are $84,000.(c)Michael's paid a total of $40,000 in cash dividends to shareholders of record.

Which of the following is not a reason to invest excess cash in temporary investments?

Which of the following stock investments should be accounted for using the fair value method?

Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.

The cost and fair value of the trading securities held by Lindy Company as of December 31 are as follows: (a) Complete the table above to find the total cost and fair value for the company's trading securities portfolio.(b) Calculate and record the required December 31 adjustment.(c) Explain how the adjustment from step (b) is reported on Lindy's financial statements.

Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -recognition of changes in the fair value of short-term investments

An equity investment in less than 20% of another company's stock is accounted for using the fair value method.

Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include a

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase under the fair value method would include a

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

Trading securities are reported on the balance sheet at fair value.