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Exam 15: Investments and Fair Value Accounting

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Question 51

Multiple Choice

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Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

A) Investment in Vallerio
B) Retained Earnings
C) Dividend Revenue
D) Dividend Receivables

E) None of the above
F) All of the above

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Question 52

Multiple Choice

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

A) investments of less than 20%
B) investments between 20 % and 50%
C) investments of less than 20% and investments between 20% and 50%
D) all stock investments should be accounted for using the cost method

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

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Question 53

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As with other assets, the cost of a bond investment includes all costs related to the purchase.

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:

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 to record the purchase would include:

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.

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

Prepare the journal entries for the following transactions for Batson Co.

Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for 2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

To record a bond investment between interest payment periods, Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

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

When the cost method is used to account for an investment, the carrying value of the investment is affected by

Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.

Financial statements in which financial data for two or more companies are combined as a single entity are called

Held-to-Maturity securities

Held to maturity securities

Trading securities are reported on the balance sheet at cost.

Which of the following statements below is not a reason a company may purchase another company's stock?

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

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97. The journal entry for the purchase would include: