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Exam 15: Investments and Fair Value Accounting

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Question 21

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Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is:

A) 5%
B) 10%
C) 25%
D) 20%

E) B) and D)
F) All of the above

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Question 22

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Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito adjust their investment in Reyes Company under the equity method?

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Question 23

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Investments in bonds that management intends to hold to maturity are called trading securities.

All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except:

(1) Discuss factors contributing to the trend to fair value accounting. (2) What are some of the disadvantages associated with using fair value?

Temporary investments are recorded at their cost which would include broker's commissions.

All of the following are disadvantages of fair value use except:

On August 1, 2011, Airport Company sold Paxton Company $1,000,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, 2012, Paxton sold half of the bonds for $520,000 plus accrued interest. Present entries to record the following transactions:

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:

Unrealized gains and losses on trading securities are not included in the calculation of net income.

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 semi-annually. The journal entry to record the receipt of interest on the next interest payment date would be:

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

Companies may report comprehensive income on each of the statements below except

Which of the following is not a part of comprehensive income?

Following is data for the available-for-sale securities held by AdBrand Company as of December 31, 2012. Required: (1) Complete the table above to find the total cost and fair value for the company's available-for-sale securities portfolio. (2) Calculate and record the required December 31, 2012 adjustment. (3) Explain how the adjustment from step (2) is reported on AdBrand's 2012 financial statements.

Trading securities should be reported on the financial statements at fair market value.

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

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Investment in Bonds is listed on the balance sheet after Bonds Payable.