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Exam 13: Investments and Fair Value Accounting

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Question 51

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Growth firms generally pay regular dividends to stockholders.

A) True
B) False

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Question 52

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Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

A) True
B) False

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Question 53

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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

Journalize the entries to record the following selected bond investment transactions for Southwest Bank: a) Purchased $400,000 of Daytona Beach 5% bonds at 100 plus accrued interest of $4,500. b) Received the first semiannual interest. c) Sold $250,000 of the bonds at 97, plus accrued interest of $1,800.

Yankton Company began the year without an investment portfolio. During the year, it purchased investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

Match each of the definitions that follow with the appropriate investment term a-j) . -the market price that would be received if an investment were sold

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

On January 1, Butte Company's Valuation Allowance for Trading Investments account has a debit balance of $23,200. On December 31, the cost of the trading securities portfolio was $80,000. The fair value was $98,000. Which of the following would Butte report on the income statement for the current year?

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is purchased for $45 a share plus brokerage fees of $280. The entry for the purchase is

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

On May 1, Cedar Inc. purchases $150,000 of 10-year, Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest. What entry would Cedar record when receiving its semiannual interest on March 1?

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Present entries to record the following selected transactions: a) Purchased bonds at 93 for $465,000. b) Sold half the bonds at 98 plus accrued interest of $4,000. The broker deducted $200 for brokerage fees and taxes, remitting the balance. The bonds were carried at $479,000 at the time of the sale.

Match each of the definitions that follow with the appropriate investment term a-j) . -the company investing in another company's stock

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the receipt of interest on the next interest payment date would be

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

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

On March 1, Year 1, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for $325,000. On December 31, Year 1, Glory reports net income of $162,000. On January 15, Year 2, Glory pays total dividends to stockholders of $33,000. Journalize the three transactions.

Match each of the definitions that follow with the appropriate investment term a-j) . -appropriate method for accounting for small stock investments

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

The equity method causes the investment account to mirror the proportional changes in book value of the investee.