Exam 7: Accounting for Debt and Share Investments

Music City paid $37,800 plus a broker's fee of $525 to acquire 8% Airport Corp bonds with a $40,000 maturity value.Music City intends to hold the bonds to maturity.The proceeds Music City receives at maturity will be

Tool Co.received cash dividends of $3.5 per share on 300 Sharp Systems Inc.shares.The journal entry to record the transaction is a debit to Cash of $1,050 and a credit to Dividend Income of $1,050.

An investor that significantly influences the operations of an investee should account for the investment using the equity method.

Significant influence investments

Joint venture arrangements are ones in which two or more parties jointly control the resulting economic activity.

On January 5,2015,Erin Ridge Corp.purchased 28,000 shares of Forest Lawn Inc.common shares for $146,000 plus a broker's fee of $1,000.Forest Lawn Inc.has 50,000 common shares outstanding and has acknowledged the fact that its policies will be significantly influenced by Erin Ridge.The investment should be accounted for as a non-equity investment using the fair value method.

As an investment in associates,Spotifly purchased 1,000 Tangerine Music Corp common shares for $123,000.Tangerine Music Corp also paid $575 in commissions on the transaction.The entry to record the transaction would include a:

The sale of a short-term equity investment includes a debit to

You are referred to as an investor when you

Micron owns 30% of JVT Corp's common shares and has significant influence over JVT's operations.Micron receives $6,500 in dividends from JVT.The entry to record receipt of the dividends includes a debit to Cash for $6,500 and a credit to Investment in JVT Shares for $6,500.

Non-strategic investments are always classified as short-term regardless of how long the investment is planned to be held.

You have just purchased some shares in a Canadian public company.Your friends call you an "investee." You are surprised that they got it wrong: you are an investor.

Identify the reason(s)why investments are made in other corporations.

On January 1, 2020, Ildiko Corporation purchased a 35% interest in the common shares of Rance Ltd. for $60,000. Rance Ltd. reported profit and paid dividends as follows: 2020 - profit $40,000; dividends paid $50,000 2021 - profit $85,000; dividends paid $70,000. Assume that Ildiko Corporation uses the equity method to account for its investment in Rance Ltd. -The balance in the "Investment Income" account on Ildiko's Income Statement for the year ended December 31,2021 is

On May 15,Kingswood Company purchased 30% worth of Pineview Ltd.'s common shares as a significant influence investment.On September 30,Pineview announced that profit for the year amounted to $650,000.Kingswood should record a debit to Investment in Pineview Common Shares of $195,000 and a credit to Earnings from Investment in Pineview of $195,000.

Fasten Corp owns 35% of Velcro Corp common shares,and is considered to have significant influence.Velcro paid a total of $27,000 in common dividends.Fasten would record the dividend transaction with a

The receipt of cash dividends from a significant influence investment is recorded as a reduction to retained earnings by the investor.

Define and explain how to account for a business combination.

Comoco purchased $3,000 of Borel Ltd shares intending to sell the shares within a short time at a profit.The journal entry to record the transaction would include a debit to cash and a credit to short-term investments.

Swixon owns 17% of Nugoi as an investment in an associate.Nugoi paid $28,000 in total dividends to its shareholders.Swixon should record a