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Exam 13: Investments and Fair Value Accounting

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Question 1

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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 $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 for the sale would include a

A) debit to Cash,$111,840
B) credit to Investments,$112,000
C) credit to Loss on Sale,$23,680
D) debit to Cash,$112,000

E) A) and C)
F) A) and B)

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Question 2

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The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

A) True
B) False

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Question 3

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On May 1,Cedar Inc.purchases $100,000 of 10-year,Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest.What entry would Cedar record when receiving its semiannual interest on September 1?

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year.On January 1,the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000.Determine the a comprehensive income for the year,b retained earnings balance on December 31,and c the accumulated other comprehensive income on December 31.

Growth firms generally pay regular dividends to stockholders.

GAAP requires trading and available­for­sale investments to be recorded

On January 1,the Valuation Allowance for Available-for-Sale Investments account had a zero balance.On December 31,the cost of the available-for-sale securities was $48,700,and the fair value was $39,200.Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31.

An investor purchased 500 shares of common stock,$25 par,for $21,750.Subsequently,100 shares were sold for $49.50 per share.What is the amount of gain or loss on the sale?

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 May 1, Pierce Company purchased $60,000 of Stanton Company’s 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest. -What are the total proceeds from the February 1 sale?

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.

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share.The market value of the stock is $16 per share.The company's dividend yield is

Investment in Bonds is reported on the balance sheet at lower of cost or market.

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

Comprehensive income must be reported on the income statement.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

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