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Exam 15: Investments

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Question 81

Multiple Choice

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Investments in debt securities that the company actively manages and trades for profit are referred to as short-term investments in:

A) Available-for-sale securities.
B) Held-to-maturity securities.
C) Trading securities.
D) Realizable securities.
E) Liquid securities.

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

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Question 82

Multiple Choice

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All of the following statements regarding other comprehensive income are true except:

A) Other comprehensive income includes unrealized gains and losses on available-for-sale securities.
B) Other comprehensive income is not considered when calculating comprehensive income.
C) Other comprehensive income includes foreign currency adjustments.
D) Other comprehensive income includes pension adjustments.
E) Accumulated other comprehensive income is defined as the cumulative impact of other comprehensive income.

F) C) and D)
G) A) and C)

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Question 83

True/False

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Management's intent determines whether an available-for-sale security is classified as long-term or short-term.

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment.The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Any cash dividends received from equity securities are recorded as Dividend Expense.

When using the equity method for investments in equity securities,the investor records the receipt of cash dividends as a debit to Cash and a Credit to the Equity Method Investment.

Short-term investments:

The controlling investor is called the:

Explain how to account for available-for-sale debt securities at and after acquisition and how they are reported in financial statements.

A company has net income of $130,500.Its net sales were $1,740,000 and its average total assets were $2,750,000.Its profit margin equals 7.5%.

Pravis Corporation owns 30% of Kuster Corporation.Pravis Corporation received $9,000 in cash dividends from Kuster Corporation.The entry to record receipt of these dividends is:

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

________ refers to all changes in equity for a period except for those due to investments by and distributions to owners.

In its first year of operations,Largo Co.purchased bonds of MacDermott Corp.with a cost of $125,000 and a market value of $127,000.Largo also purchased bonds of Armistead with a cost of $25,000 and a market value of $24,700.These are classified as long-term available-for-sale securities.Prepare the journal entry to record the market value of the investments as of December 31.

A company paid $600,000 for 10% bonds with a par value of $600,000 on September 1.The bonds pay 5% interest semiannually on September 1 and March 1.The company intends to hold the bonds until they mature.Prepare the journal entries for the following dates and transactions related to this bond acquisition. (1)Bonds purchased on September 1. (2)Year-end adjusting entry,December 31. (3)Receipt of semiannual interest March 1. (4)Redemption of the bonds at maturity on August 31.

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.The January 12,Year 3,entry to record Barber's sale of 3,000 shares of Convell Company stock,which represents 60% of Barber's total investment,for $39,000 cash should be:

Strickland Corporation has invested in bonds of Nez Corporation.Strickland intends to actively manage this investment for profit.This investment is classified as:

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as long-term available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On March 15,Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel received the dividend on April 15 and ultimately sells half of the Marcelo stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The journal entry to record the purchase on February 15 is:

On January 1,Jewel Company buys $200,000 of Marcelo Corp.12%,36-month notes.Interest is paid on the last day of each month.The notes are classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On December 31,the notes have a fair value of $204,000.The journal entry on January 1 to record the investment is: