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Exam 13: Investments and Fair Value Accounting

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Question 21

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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 22

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The journal entry Stanton will record on June 30,2014,will include:

A) a credit to Interest Revenue for $2,400.
B) a debit to Cash for $3,600.
C) a credit to Cash for $2,400.
D) a credit to Interest Receivable for $1,200.

E) C) and D)
F) A) and D)

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Question 23

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Which of the following stock investments should be accounted for using the cost method?

Gale Company owns 87% of the outstanding stock of Leonardo Company.Leonardo Company is referred to as the

Ruben Company purchased $100,000 of Evans Company bonds at 100.Ruben later sold the bonds at $104,500 plus $500 in accrued interest.The journal entry to record the sale of the bonds would be:

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

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

On January 1,2012,Valuation Allowance for Available-for-Sale Investments had a zero balance.On December 31,2012,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 31,2012.

It is possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

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

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

When shares of stock held as an investment are sold,the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

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

On January 1,2014,Blanton Company's Valuation Allowance for Trading Investments account has a debit balance of $23,200.On December 31,2014,the cost of the trading securities portfolio was $80,000.The fair value was $98,000.Which of the following would Blanton report on the income statement for 2014?

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:

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

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

Although marketable securities may be retained for several years,they continue to be classified as temporary,provided they are readily marketable and can be sold for cash at any time.

The journal entry Stanton will record on February 1,2015,will include:

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?