Exam 16: Investing Assets

PM Distributors began Year 2 with Equity Investments of $8,100 (which consisted of a single investment) as well as a debit balance of $1,000 in the Fair Value Adjustment - Equity Investments account. PM does not have significant influence over the investee, and the investment has a readily determinable fair value. This trading security was sold for $9,100 during Year 2. How much was the gain or loss for the sale of this investments and how is it recorded?

Bonds are priced such that their yield will be the same as the stated rate of interest.

For securities classified as held-to-maturity, companies must disclose the aggregate fair value of those securities in the notes to its financial statements.

Both realized and unrealized gains and losses for equity securities with no significant influence and a readily determinable fair value are classified as other income on the income statement.

Which of the following is a debt security for which management has both the positive intent and ability to hold the debt investment until all principal and interest is fully paid?

Crush Enterprises purchased 500,000 of the 1,000,000 outstanding shares of Carly Casualties for $4,500,000 on 1/1/19. On the date of the investment, Carly had net assets with a book value of $9,500,000 and fair value of $10,000,000. This difference is the result of equipment (remaining 10 year life) with a higher fair value than book value. Crush has significant influence over Carly and will account for this investment using the equity method. During the year, Carly declared dividends of $125,000 and reported Net Income of $1,300,000. Prepare all necessary journal entries for Crush related to this investment. Then, calculate the ending balance in the Investment in Carly account.

Which of the following is not a consideration for a company in determining whether to disclose more detail by security type?

Which of the following statements is incorrect in regard to the equity method of accounting for investments? The fair value option approach is not used.

If the stated interest rate of a note is higher than the prevailing market rate, a resulting discount on notes receivable will be recorded.

On January 1, Year 1, Gibson Corporation purchased bonds issued by Williamson Company. These bonds were classified as held-to-maturity securities. The face value of these bonds is $100,000, pay 8% interest and were purchased to yield 6%. The bonds mature in 10 years and pay interest on an annual basis. If Gibson Corporation paid $114,720 for these bonds, how much interest revenue should it report on the bonds at December 31, Year 1? Assume that Gibson used the effective interest method.

Zenith Corporation reports its investments in debt securities at cost. This method of accounting is consistent with the qualitative characteristic of ________ from the conceptual framework.

Investments in securities of other companies are classified as either debt securities or equity securities.

Pink Partners holds equity investment with a carrying value of $39,000. The investment has no readily determinable value. The current fair value of the investment is $24,000. There is objective evidence of an impairment. Should an impairment loss be recorded? How much of this loss should be classified in net income and how much should be classified in other comprehensive income?

For securities classified as held-to-maturity, what do companies disclose in the notes to the financial statements?

Under the equity method, cash dividends received by the investor from the investee should be treated as ________.

On April 1, 2018, Ellucian Corporation invested in the bonds issued by the City of Westminster on January 1, 2018. These 10-year, $300,000 bonds pay interest of 2% with semiannual payments every June 30 and December 31. Ellucian paid par value plus accrued interest. What is the total amount paid by Ellucian for the City of Westminster bonds?

JayBird Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates. At the time of the acquisition, the book value of Angel's net assets equals their fair market value. Angel declared dividends of $276,000 during the year. How will JayBird record the last transaction?

Skywalker Limited purchased shares of Jedi Jewelers during 2018 for $124,000. Skywalker elected the fair value option for accounting for this investment. At year end 2018, 2019, and 2020, this investment had a fair value of $120,000, $134,000, and $137,000, respectively. What is the amount of unrealized gain or loss reported on this investment at year-end 2020?

Which of the following is a difference between U.S. GAAP and IFRS in accounting for equity investments with no significant influence and a readily determinable fair value?

Which of the following is a debt security that a company intends to hold only for the short term?