Exam 14: Investments in Debt and Equity Securities

The following information is available for an enterprise's security investments as of December 31, 2011: In June 2012, the enterprise decided to reclassify the Costco stock as trading securities. The stock had a market value of $41,000 at the time of the reclassification. What amount of holding gain or loss is immediately recognized in 2012 earnings?

The Financial Accounting Standards Board had several goals in issuing Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and changing the accounting for certain debt and equity securities from a lower-of-cost-or-market basis to a fair value basis. Among these goals was the elimination of what is termed "gains trading." Explain the meaning of the term "gains trading."

From the following, select the most appropriate basis for the valuation of a new investment when properties or services are exchanged for stock.

On January 1, 2010, a company purchased four 6%, $1,000 Conoco bonds at 104 as an investment in securities available-for-sale. The bonds pay interest each December 31 and have four years remaining to maturity on the purchase date. The market value of the bonds on December 31, 2010, was 107, and on December 31, 2011, was 105. The entry to adjust the carrying value of the securities available-for-sale at December 31, 2011, will include a

If the combined market value of available-for-sale securities at the end of the year is less than the market value of the same portfolio of available-for-sale securities at the beginning of the year, the difference should be accounted for by

A firm purchased bonds to be classified as an investment in securities available-for-sale. The bonds were purchased at a premium. Assume the market price of the bond is volatile. Given these facts, which of the following is correct?

If the combined market value of trading securities at the end of the year is less than the market value of the same portfolio of trading securities at the beginning of the year, the difference should be accounted for by

Edwards Company began business in February of 2010. During the year, Edwards purchased the three trading securities listed below. On its December 31, 2010, balance sheet, Edwards appropriately reported a $4,000 credit balance in its Market Adjustment--Trading Securities account. There was no change during 2011 in the composition of Edward's portfolio of trading securities. Pertinent data are as follows: What amount of loss on these securities should be included in Edward's income statement for the year ended December 31, 2011?

An investor that uses the equity method of accounting for its investment in a 30 percent-owned investee that earned $50,000 and paid $8,000 in dividends, made the following entries: What effect will these entries have on the parent corporation's statement of financial position?

FASB Statement No. 115 generally applies when the level of ownership of another company is at what percentage?

Investments in debt securities currently are permitted to be classified as held-to-maturity and accounted for at amortized cost if an enterprise has the positive intent and ability to hold these securities to maturity. The held-to-maturity classification is the most restrictive of the three classifications specified in accounting standards. Despite the restrictiveness of the held-to-maturity classification, certain changes in circumstances may occur that would necessitate transferring an investment in a debt security from the held-to-maturity classification without calling into question the investor's general intention to hold other similarly classified investments to maturity. What types of circumstances would cause an investor in debt securities classified as held-to-maturity to change that classification without calling into question the intent of the investor to hold other similarly classified investments to maturity?

Webster Inc. carries the following marketable equity securities on its books at December 31, 2010, and 2011. All securities were purchased during 2010 and there were no beginning balances in any market adjustment accounts. The cost method is used in accounting for all investments in securities.

The following information is available for an enterprise's security investments as of December 31, 2011: In June 2012, the enterprise decided to reclassify the Wal-Mart bonds as securities available-for-sale. The bonds had a market value of $31,000 at the time of the reclassification. What amount of holding gain or loss is immediately recognized in 2012 earnings?

Benjamin Corporation held the following short-term investments in equity securities classified as trading securities: The valuation account is a net credit of $8,000 at the end of 2011. What was the original cost per share of the C common stock?

On August 31, 2011, Stiggins Company purchased the following available-for-sale securities: On December 31, 2011, Stiggins reclassified its investment in security F from available-for-sale securities to trading securities. What total amount of loss on these securities should be included in Stiggins' income statement for the year ended December 31, 2011?

Tyler Company began operations in 2010. The company's trading securities portfolio, which did not change in composition during 2011, is as follows: Ignoring income taxes, what amount should be reported as an unrealized loss on trading securities in Tyler's 2011 income statement?

At January 1, 2011, a company had a net valuation allowance account credit balance for investments in securities available-for-sale of $20,000. At December 31, 2011, the total cost of the relevant portfolio was $300,000, and total market value was $275,000. The entry required on December 31, 2011, would reflect a

On July 1, 2011, The Woodward Group purchased for cash 35 percent of the outstanding capital stock of Massey Studios. Both The Woodward Group and Massey Studios have a December 31 year-end. Massey Studios, whose common stock is actively traded in the over-the-counter market, reported its total net income for the year to The Woodward Group and also paid cash dividends on November 15, 2011, to The Woodward Group and its other stockholders. How should The Woodward Group report the above facts in its December 31, 2011, balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.

Changes in fair value of securities are reported in the stockholders' equity section of the balance sheet for which type of securities?

On October 1, Dennis Company purchased $200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and classified them as held-to-maturity securities. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were $700. At what amount should this acquisition of bonds be recorded?