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Exam 13: Investments and Fair Value Accounting

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Question 81

Multiple Choice

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An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

A) $3,500 gain
B) $350 gain
C) $350 loss
D) $500 gain

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

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Question 82

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Comprehensive income must be reported on the income statement.

A) True
B) False

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Question 83

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Temporary investments are recorded at their cost, which would include broker's commissions.

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Comprehensive income does not affect net income or retained earnings.

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?

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

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Any gains or losses on the sale of bonds normally would be reported in the Other Income Loss) section of the income statement.

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 purchase would be

An equity investment in less than 20% of another company's stock is accounted for using the cost method.

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?

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

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

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Match each of the definitions that follow with the appropriate investment term a-j) . -debt investments that a company intends to keep until their maturity date

Trading securities should be reported on the financial statements at fair market value.

Yankton Company began the year without an investment portfolio. During the year, they purchased investments classified as trading 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

Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year. On January 1, the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000. Determine the a) comprehensive income for the year, b) retained earnings balance on December 31, and c) the accumulated other comprehensive income on December 31.

a) Discuss factors contributing to the trend to fair value accounting. b) What are some of the disadvantages associated with using fair value?