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Exam 13: Investments and Fair Value Accounting

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Question 61

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Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies.The investment should be accounted for by the

A) equity method
B) market method
C) cost or market method
D) cost method

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

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Question 62

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

A) earning a return on excess cash
B) sustain the other company's stock price
C) gaining control of another company's operations
D) developing or maintaining business relationships

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

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Question 63

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On July 5,Winter Company had a market price of $58 per share of common stock.For the prior year,Winter Co.had paid an annual dividend of $3.48 per share.What is the dividend yield for Winter Company?

On September 1,Parsons Company purchased $84,000,10 year,7% government bonds at 100 plus accrued interest.The semi-annual interest payment dates are June 30 and December 31.Interest calculations are done by the month. a- Journalize the entry to record the bond purchase. b- Journalize the receipt of interest on December 31 of the first year. c- Journalize the sale of the bonds on February 1 of the second year for $82,000 plus accrued interest.

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

On June 1,$40,000 of treasury bonds were purchased between interest dates.The broker commission was $600.The bonds pay interest at 12%,which is paid semiannually on January 1 and July 1.How much interest revenue will be recorded on July 1?

Following is data for the available-for-sale securities held by Lindy Company as of December 31: $\begin{array}{|l|r|r|r|r|r|}\hline \text { Name } & {\begin{array}{c}\text { Number of } \\\text { Shares }\end{array}} & \begin{array}{c}\text { Cost } \\\text { per Share }\end{array} & \begin{array}{c}\text { Fair Value } \\\text { per Share }\end{array} & \text { Total Cost } & \begin{array}{c}\text { Total } \\\text { Fair Value }\end{array} \\\hline \text { Laurie, Inc. } & 1,200 & \$ 15.00 & \$ 15.40 & & \\\hline \text { Scott Corp. } & 800 & 8.00 & 8.25 & & \\\hline \text { Stephanie Company } & 700 & 14.40 & 13.50 & & \\\hline \text { Timmer Company } & 900 & 12.35 & 10.77 & & \\\hline \text { Total } & & & & &\\\hline\end{array}$ a. Complete the table above to find the total cost and fair value for the company's available­for­sale securities portfolio. b. Calculate and record the required December 31 adjustment. c. Explain how the adjustment from step 2 is reported on Lindy's financial statements.

Alan Company purchased $400,000 of ABC Co.5% bonds at 100 plus accrued interest of $4,500.Alan later sold $250,000 of bonds at 97.The journal entry for the purchase would include a

a. What is comprehensive income? b. How is it calculated? c. What are some examples of items included in other comprehensive income? d. Where is comprehensive income reported?

In general,consolidated financial statements should be prepared

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

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

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

Held-to-maturity securities

Held-to-maturity securities

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

Blanton Corporation purchased 15% 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?

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

Journalize the entries to record the following selected equity investment transactions completed by Perry Company during the current year.Perry accounts for this investment using the cost method.

A company uses cash to pay all of the following except