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Exam 15: Investments and Fair Value Accounting

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Question 21

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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 semi-annually. The journal entry to record the receipt of interest on the next interest payment date would be:

A) Debit: Cash $4,000; Credit: Interest Revenue $4,000
B) Debit: Cash $4,000; Credit: Interest Receivable $4,000
C) Debit: Cash $4,000; Credit: Interest Receivable $1,500 and Interest Revenue $2,500
D) Debit: Cash $2,500; Credit: Interest Revenue $2,500

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

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Question 22

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

A) True
B) False

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Question 23

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

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. What are the total proceeds from the February 1, 2015 sale?

On January 1, 2012, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2012, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31, 2012.

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

Temporary investments such as in trading securities are

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

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito adjust their investment in Reyes Company under the equity method?

Interest revenue on bonds is reported

Present entries to record the following selected transactions of Masterson Co.

Growth firms generally pay regular dividends to stockholders.

Herberto Company had a net income of $74,000, and other comprehensive loss of $8,500 for 2012. On January 1, 2012, the Retained Earnings balance was $425,000 and the Accumulated Other Comprehensive Income balance was $52,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

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:

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on June 30, 2014, will include:

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?

Comprehensive income does affect net income or retained earnings.

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 semi-annually. The journal entry to record the purchase would be:

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Prepare the journal entries for the following transactions for Morgan Co.