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Exam 15: Investments and Fair Value Accounting

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Question 21

Multiple Choice

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Interest revenue on bonds is reported as

A) an addition to the investment in bonds account
B) part of comprehensive income but not as part of net income
C) part of other income
D) part of operating income

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

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Question 22

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

A) True
B) False

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Question 23

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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?

Yankton Company began the year without an investment portfolio. During the year, it 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. Yankton Company's financial statements for the current year should show

Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.

Match each of the definitions that follow with the appropriate investment term (a-j) . -Debt and equity securities purchased and sold to earn short-term profits from changes in the market price

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

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

Match each of the definitions that follow with the appropriate investment term (a-j) . -Measurement of the rate of return to stockholders based on cash dividends

Following are data for the available-for-sale securities held by Lindy Company as of December 31:?? (a) Complete the table above to find the total cost and fair value for the company's available-for-sale securities portfolio. (b) Calculate and record the required December 31 adjustment. (c) Explain how the adjustment from part (b) is reported on Lindy's financial statements.

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

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

Held-to-maturity securities

Present entries to record the following selected transactions of Masterson Co.Aug. 1Purchased 600 shares of the 100,000 shares outstanding $10 par common shares of Dankin Corporation for $5,100.1Purchased 3,500 shares of the 10,000 shares no par common shares of Ramon Co. for $45,700. The investment was accounted for by the equity method.Sept. 1Received a cash dividend of $1 per share on the Dankin Corporation stock acquired on August 1.1Received a cash dividend of $2 per share on the Ramon Co. stock acquired on August 1.Dec. 31Sold 100 shares of the Dankin Corporation shares acquired on August 1 for $2,100.31Dankin Corporation reported net income of $30,000 and Ramon Company's reported net income was $50,000.​

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 dividend per share of $0.42. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase would include a

In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

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. 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) . -Recognition of changes in the fair value of short-term investments

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is

Match each of the definitions that follow with the appropriate investment term (a-j) . -When using this, dividends are treated as a reduction of the investment