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Exam 15: Investments and Fair Value Accounting

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Question 1

True/False

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Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

A) True
B) False

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Question 2

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The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

A) True
B) False

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Question 3

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The account Unrealized Gain (Loss) on Trading Securities should be included in the

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.

Match each of the following investment terms with the appropriate definition below.

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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.

Which of the following is not a part of comprehensive income?

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

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

What is comprehensive income? How is it calculated? What are some examples of items included in other comprehensive income? Where is comprehensive income reported?

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

Which of the following is not a reason to invest excess cash in temporary investments?

All of the following are disadvantages of fair value use except:

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

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

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

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