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Exam 15: Investments and Fair Value Accounting

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Question 1

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Which of the following is not a part of comprehensive income?

A) foreign currency items
B) cash flows from stock investments
C) unrealized gains and losses on available-for-sale securities
D) pension liability adjustments

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

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Question 2

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The journal entry Pierce will record on June 30 will include a

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

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

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Question 3

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The equity method of accounting for investments requires

Growth firms generally pay regular dividends to stockholders.

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

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1.Marco reported net income of $95,000 and declared dividends of $35,000 during the year.How much would Ramiro adjust its investment in Marco Company under the equity method?

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

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

On May 1,Cedar Inc.purchases $150,000 of 10-year,Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest.Journalize the entry to record the semiannual receipt of interest on March 1,Year 2.

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

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

Held-to-maturity investments are recorded at their cost,which would include broker's commissions.

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?

In general,consolidated financial statements should be prepared

The company whose stock is more than 50% owned by another company is called the

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

Match each of the definitions that follow with the appropriate investment term (a-j) . -What occurs when a company purchases 50% or more of another company's stock

Investments that do not normally change in value are disclosed on the balance sheet as cash and cash equivalents.

The income statement for Dobson Corporation reported net income of $22,400 for the year ended December 31 before considering the following:During the year,the company purchased available-for-sale securities.At year-end,the fair value of the investment portfolio was $2,100 more than cost.The balance of Retained Earnings was $83,000 on January 1.Dobson Corporation paid $9,000 in cash dividends during the year.Calculate the balance of Retained Earnings on December 31.

(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?