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Exam 13: Investments and Fair Value Accounting

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Question 61

True/False

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

A) True
B) False

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Question 62

Multiple Choice

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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?

A) debit Investment in Worton Corporation; credit Cash
B) debit Cash; credit Dividend Revenue
C) debit Investment in Worton Corporation; credit Income of Worton Corporation
D) debit Cash; credit Investment in Worton Corporation

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

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Question 63

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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 for the sale would include:

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

The account Unrealized Gain (Loss) on Trading Securities should be included in the

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Present entries to record the following selected transactions of Masterson Co.

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

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

Interest revenue on bonds is reported

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

If one company owns more than 50% of the common stock of another company

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

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, 6% Manus Corporation bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when purchasing the bonds?

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

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?

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