Exam 7: Accounting for Debt and Share Investments

Repeat Inc.purchased $60,000 (40%)worth of Quiet Corp.common shares.The journal entry to record the purchase should include a debit to Cash for $60,000 and a credit to Quiet Corp.Investment for $60,000.

As a significant influence investment,Coinway held 1,400 Habteq common shares with a carrying value of $65,223.It sold the shares on December 13 for $72,665.Prepare the journal entry to record the sale.

When you purchase a debt investment such as a bond of another corporation,this type of investment represents an "equity security."

Explain how long-term debt securities that will be held to maturity are reported.

The investor should report short-term investments at fair value.

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 in Associate - Rance Ltd" account on Ildiko's balance sheet at December 31,2020 is

Strategic investments that occur when the investor can significantly influence the strategic operating,investing,and/or financing policies of the investee are called

When an investment in equity securities is sold,the gain or loss is calculated by comparing proceeds from the sale with the book value of the investment on the date of sale.

Goldex Corporation had the following long-term investment transactions. Jan.2 Purchased 5,000 shares of Donware,Inc.for $40 per share plus $6,195 in fees and commission.These shares represent a 30% ownership of Donware. Sept.20 Donware declared a $1.50 per share cash dividend to shareholders of record on October 1,payable October 15. Oct.15 Received Donware,Inc.cash dividend. Dec.31 Donware reported a net loss of $66,000 for the year. Prepare the journal entries Goldex Corporation should record for these transactions.

On January 2,Excelsius Corp purchased 10,000 Etherovo Corp common shares at $11 per share plus a $5,200 commission.On August 6,Etherovo Corp declared and paid dividends of $2.10 per share,and on December 31,it reported a profit of $350,000.Assuming Etherovo Corp has 32,000 common shares outstanding.Prepare the necessary entries on the books of Excelsius Corp to account for these transactions.

Investments are often made by companies with excess cash hoping to earn a higher return than might be realized by holding cash in the bank.

Strategic investments

The method used to account for non-strategic investments is the

Consolidated financial statements

After recording the initial purchase of non-strategic investments,an entity must continue to measure the investment at fair value; subsequent profits or losses arising are recognized in profit.

When a business operates as a parent company with subsidiaries,the accounting records are combined into one set of consolidated records.

Management's intent and the marketability of a security determine whether or not a security is classified as a long-term or current asset.

Prepare general journal entries for the following transactions involving short-term securities (assume no investments were held prior to the following transactions): (a)Feb 16: Purchased 700 Flay Corp shares at $45 per share.Commission was $40. (b)Feb 26: Purchased 300 Laurier Corp shares at $32 per share,no commission. (c)Mar 2: Received a $5 per share dividend on the Flay Corp shares. (d)Mar 28: Sold 150 shares of Flay Corp at $55 per share. (e)April 20: Sold 250 shares of Laurier Corp at $20 per share. (f)April 30: End of the quarter.The company is preparing quarterly statements.Fair values for securities are as follows: Flay Corp $47 per share,and Laurier Corp $21 per share.

Master purchased 60,000 Kotram Corp common shares.This represents 40% of the outstanding shares.The purchase price was $142,000.The entry to record the transaction includes a

If a company has cash available for longer term investments,both debt and equity investments may be considered.