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Exam 15: Investments and Fair Value Accounting

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Question 41

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Journalize the entries to record the following selected equity investment transactions completed by Flurry Company during the current year. Flurry's purchase represents less than 20% of the total outstanding Braxter Co. stock.​Feb. 2Purchased for cash 500 shares of Braxter Co. stock for $34 per share plus a $250 brokerage commission.Apr. 16Received dividends of $0.35 per share on Braxter Co. stock.June 17Sold 100 shares of Braxter Co. stock for $40 per share less a $100 brokerage commission.​

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Question 42

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Which of the following statements is not a reason a company may purchase another company's stock?

A) earning a return on excess cash
B) sustaining the other company's stock price
C) gaining control of another company's operations
D) developing or maintaining business relationships

E) A) and B)
F) A) and C)

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Question 43

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In general, consolidated financial statements should be prepared

Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31 before considering the following: During the year, the company purchased trading securities. At year-end, the fair value of the investment portfolio was $23,000 less than cost. The balance of Retained Earnings was $823,000 on January 1. Hudson Company paid $43,000 in cash dividends during the year.Calculate the balance of Retained Earnings on December 31.

If the proceeds from the sale of bond investments exceed the carrying amount of the bonds, a gain is realized.

As with other assets, the cost of a bond investment includes all costs related to the purchase.

Match each of the definitions that follow with the appropriate investment term (a-j) . -Combined reporting of a corporation and other corporations it controls

The valuation allowance for trading investments account is found on the

(a) What is comprehensive income? (b) How is it calculated? (c) What are some examples of items included in other comprehensive income? (d) Where is comprehensive income reported?

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

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its investment in Reyes Company under the equity method?

Herberto Company had a net income of $74,000 and other comprehensive loss of $8,500 for the year. On January 1, the retained earnings balance was $425,000, and the accumulated other comprehensive income balance was $52,000. 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.

Journalize the entries to record the following selected transactions of Oliver Co.:May 1Purchased $100,000 of Kruse Co. 6% bonds at their face amount plus accrued interest of $2,000.July 1Received first semiannual interest payment.Sept. 1Sold the bonds at 97 plus accrued interest of $1,000.

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

The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

Which of the following stock investments should be accounted for using the cost method?

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

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

The account Unrealized Gain (Loss) on Available-for-Sale Investments should be included on the