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Exam 15: Investments and Fair Value Accounting

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Question 71

Multiple Choice

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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 purchase would be

A) debit Investments-Evans Company Bonds, $101,500; credit Cash, $101,500
B) debit Investments-Evans Company Bonds, $100,000; credit Interest Revenue, $1,500, and Cash, $98,500
C) debit Investments-Evans Company Bonds, $100,000, and Interest Receivable $1,500; credit Cash, $101,500
D) debit Investments-Evans Company Bonds, $100,000; credit Cash, $100,000

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

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Question 72

True/False

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Any difference between the fair market values of the securities and their cost is a realized gain or loss.

A) True
B) False

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Question 73

Multiple Choice

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

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.

Cash is used for all of the following activities except

The cumulative effects of other comprehensive income items may be reported separately from retained earnings and paid-in capital,on the balance sheet,as accumulated other comprehensive income.

Match each of the definitions that follow with the appropriate investment term (a-j) . -The market price that would be received if an investment were sold

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

A disadvantage of fair value use is that the comparability between companies may be impacted by different fair value measurements.

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.

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

Held-to-maturity securities are reported on the balance sheet at fair market value.

Ordinarily,a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.

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

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Long-term investments are held for all of the following reasons except to

What are the total proceeds from the February 1 sale?

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

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