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Exam 29: Investments

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Question 1

Multiple Choice

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Financial statements include assets listed at

A) all of these
B) their fair value
C) their historical cost
D) their market value

E) A) and B)
F) None of the above

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Question 2

Short Answer

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Match each of the definitions that follow with the appropriate investment term (a-j). -the company whose stock is purchased by another entity 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

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Question 3

Multiple Choice

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For accounting purposes, the method used to account for investments in common stock is determined by

Accounting for the sale of stock is the same for both the fair value and the equity methods of accounting for investments.

Journalize the entries to record the following selected equity investment transactions completed by Flurry Company during the current year. Flurry's purchase represents less than 20% of the total outstanding Braxter stock.​

Temporary investments such as in trading securities are

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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

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

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

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

When long-term investments in bonds are sold before their maturity date, the seller deducts any accrued interest since the last interest payment date from the selling price.

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 method for accounting for investments of 20-50% in another company's stock

Match each of the definitions that follow with the appropriate investment term (a-j). -notes and bonds that pay interest and have a fixed maturity 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

The account Unrealized Loss on Trading Investments should be included on the

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton using the fair value method?

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of the Lucas Company. 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.​ Prepare the journal entries for the original purchase, dividend, and sale under the fair value method.

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

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 -appropriate method for accounting for small stock investments

Match each of the definitions that follow with the appropriate investment term (a-j). -what occurs when a company purchases 50% or more of another company's stock 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