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Exam 13: Investments and Fair Value Accounting

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Question 21

True/False

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

A) True
B) False

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Question 22

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Investment in Bonds are reported on the balance sheet at lower of cost or market.

A) True
B) False

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Question 23

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Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

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

The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

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

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:

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31, 2012 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 December 31, 2011. Hudson Company paid $43,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2015. Marco reported net income of $95,000 and declared dividends of $35,000 during 2015. How much would Ramiro adjust their investment in Marco Company under the equity method?

When long-term investments in bonds are sold before their maturity date, the seller deducts any accrued interest since the last interest payment date from the selling price.

Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

Investment in Bonds is listed on the balance sheet after Bonds Payable.

Any difference between the fair market values of the securities and their cost is a realized gain or loss.

Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be:

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

Define (1) debt securities and (2) equity securities. Include their similarities and differences in your discussion.

Financial statements in which financial data for two or more companies are combined as a single entity are called

Which one of the following items below would not affect the investor's income for the period?

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?