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Exam 15: Investments and Fair Value Accounting

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Question 91

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LM,Inc.reported net income for the year ending December 31 of $483,500.Dividends paid during the year totaled $52,900.The company holds available-for-sale securities with an original cost of $162,000 and a fair value of $181,000 at the end of the year.It also holds trading securities with an original cost of $150,000 and a fair value of $147,000. Retained earnings on January 1 was $736,400,and accumulated other comprehensive income on January 1 was $16,200.​Calculate the following balances to be reported in the financial statements dated December 31: (a)Valuation allowance for available-for-sale securities (b)Comprehensive income (c)Retained earnings (d)Accumulated other comprehensive income

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(a)Valuation adjustment for available-fo...

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Question 92

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The price that would be received to sell an asset or pay off a liability is the

A) fair value
B) market value
C) investing value
D) historical value

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

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Question 93

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During the first year of operations,Makala Company purchased two available-for-sale investments as follows:​​ Assume that as of December 31,Oceanna Company's stock had a market value of $49 per share and Rockledge,Inc.'s stock had a market value of $20 per share.Makala had 10,000 shares of no par stock outstanding that was issued for $150,000.For the year ending December 31,Makala had a net income of $105,000.No dividends were paid.​​

On January 1,the valuation allowance for trading investments account has a zero balance.On December 31,the cost of trading securities portfolio was $64,200,and the fair value was $67,000.​Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments.

The dividend yield is measured as

Investments in bonds that management intends to hold to maturity are called trading securities.

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.

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

On January 2,Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000.For the year ending December 31,McGuire earned income of $48,000 and paid dividends of $14,000.Prepare the entries for Todd Company for the purchase of the stock,share of McGuire income,and dividends received from McGuire.