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Exam 13: Investments and Fair Value Accounting

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Question 21

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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?

A) $50,000
B) $50,500
C) $49,500
D) $53,000

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

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Question 22

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

A) the fair value
B) the market value
C) the investing value
D) the historical value

E) All of the above
F) None of the above

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Question 23

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Interest revenue on bonds is reported

Long-term investments are held for all of the listed reasons below except

Although marketable securities may be retained for several years,they continue to be classified as temporary,provided they are readily marketable and can be sold for cash at any time.

The income statement for Dodson Corporation reported net income of $22,400 for the year ended December 31 before considering the following: ◉During the year the company purchased available-for-sale securities. ◉At year end, the fair value of the investment portfolio was $2,100 more than cost. ◉The balance of Retained Earnings was $83,000 on January 1. ◉Dobson Corporation paid $9,000 in cash dividends during the year. Calculate the balance of Retained Earnings on December 31.

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.

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.

Compare and contrast why companies invest cash in short-term temporary investments vs.long-term investments.

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

The Valuation Allowance for Trading Investments account is found on the

The company whose stock is more than 50% owned by another company is called the

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1.Roberts reported net income of $155,000 and declared dividends of $40,000 during the year.How would these events be reported by Sutton using the cost method?

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

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

Discuss the similarities and differences in reporting trading securities,available-for-sale securities and held-to-maturity securities.

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

Unrealized gains and losses on trading securities are not included in the calculation of income from operations.

On January 2,Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000.For the year ending,December 31 McGuire earned income of $48,000 and paid dividends of $14,000. Prepare the entries for Todd Company for the purchase of the stock,share of McGuire income and dividends received from McGuire.

Trading securities are reported on the balance sheet at cost.