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Exam 15: Investments and Fair Value Accounting

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Question 81

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

A) True
B) False

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Question 82

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On September 1,Parsons Company purchased $84,000,10-year,7% government bonds at 100 plus accrued interest.The semiannual interest payment dates are June 30 and December 31.Interest calculations are done by the month.

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Question 83

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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 dividend per share of $0.42.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 would include a

Define debt securities and equity securities.Include their similarities and differences in your discussion.

An investor purchased 500 shares of common stock,$25 par,for $19,250.Subsequently,100 shares were sold for $35 per share.What is the amount of gain or loss on the sale?

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

Under the equity method,a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

On April 1,Alliance Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000.On June 30,Alliance received its first semiannual interest.On February 1,Alliance sold $40,000 of the bonds at 103 plus accrued interest.The journal entry Alliance will record on April 1 for the purchase of the bonds will include a

A company uses cash to pay all of the following except

Match each of the definitions that follow with the appropriate investment term (a-j) . -The method of accounting for investments of 20% to 50% in another company's stock

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

Jacks Corporation purchases $200,000 bonds plus accrued interest for two 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

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock.The stock is purchased for $45 a share plus brokerage fees of $280.The entry for the purchase is​

On July 5,Winter Company had a market price of $58 per share of common stock.For the prior year,Winter Company had paid an annual dividend of $3.48 per share.What is the dividend yield for Winter Company?

If the proceeds from the sale of bond investments exceed the carrying amount of the bonds,a gain is realized.

On June 1,$40,000 of treasury bonds were purchased between interest dates.The brokerage commission was $600.The bonds pay interest at 12%,which is paid semiannually on January 1 and July 1.How much interest revenue will be recorded on July 1?

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest.The bond interest rate is 8%,and interest is paid semiannually.The journal entry to record the receipt of interest on the next interest payment date would be

Which of the following statements is not a reason a company may purchase another company's stock?

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31 before considering the following:During the year,the company purchased trading securities.At year-end,the fair value of the investment portfolio was $23,000 less than cost.The balance of Retained Earnings was $823,000 on January 1.Hudson Company paid $43,000 in cash dividends during the year.Calculate the balance of Retained Earnings on December 31.