Exam 16: Investing Assets

Bosworth Corporation accepted a 5-year note receivable from Steelman Company on January 1, Year 1. The maturity value of the note is $750,000. The note has a stated interest rate of 10%. However, the prevailing market interest rate is 12%. The note requires interest payments on June 30 and December 31. What will be the interest revenue recorded on June 30, Year 1?

Companies determine the cost of held-to-maturity debt securities as the present value of the future cash flows, discounted at the market rate of interest.

Available-for-sale debt securities are reported at fair value, with unrealized gains or losses reported in other comprehensive income.

For securities classified as trading, companies disclose the maturity value of those securities in the notes to its financial statements.

On January 3, 2019, Sheppard Corporation purchased 15% of Meredith Corporation's common stock for $62,000. Meredith's net income for the years ended December 31, 2019 and 2020 were $18,000 and $56,000 respectively. Meredith declared no dividends during 2019; however, during 2020, the company declared a $70,000 dividend. On December 31, 2019, the fair value of Meredith's stock that Sheppard Corporation owned had increased to $74,000; in 2020, it increased again to $76,000. What will be the balance in the investment account at the end of December 31, 2019?

During 2018, Arnold Corporation purchased $6.2 million of 10 year municipal bonds at face value. On December 31, 2020, the bonds had a market value of $6,900,000. Arnold reclassified the bonds from held-to-maturity to trading securities. Arnold's balance sheet and income statement for December 31, 2020 will reflect which of the following?

Amortization of a Discount on Notes Receivable results in receiving less in Cash interest payments than earned Interest Revenue.

Zeng Jewelers purchased 6,000,000 of the outstanding 20,000,000 shares of Angel & Associates. Zeng has significant influence over Angel, so Zeng will account for this investment using the equity method. On the purchase date, Angel had net assets with a book value of $7,300,000 and a fair value of $7,800,000. The difference in fair value is a result of the higher fair value of equipment than its book value. The remaining useful life of this equipment is 25 years. Assuming this investment was purchased on 1/1, how will Zeng record the difference in net assets for this investment on 12/31?

A company generally classifies securities as available-for-sale when it plans to actively buy and sell securities with the objective of generating a gain on the sale.

Can impairment losses recorded on held-to-maturity debt investments be reversed at a later date?

Which of the following is(are) the primary effect(s) of amortizing a discount on notes receivable?

As of 12/31/20, XYZ Inc. had available-for-sale debt investments with a fair value of $505,000, an amortized cost of $542,000, and a debit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,200. What is the amount of gain or loss reported by XYZ related to these available-for-sale debt investments and how should it be reported?

Boston Exporters purchased 40,000 of the 100,000 outstanding shares of Giant Distributors for $2,000,000. Boston has significant influence over Giant and will account for this investment using the equity method. During the year, Giant declared dividends of $140,000 and reported Net Income of $800,000. Record all necessary journal entries for Boston related to this investment for the year. Then, calculate the ending balance of the Investment in Giant account.

Blue Co. holds a debt investment at an amortized cost of $250,000. The present value of future cash flows from the investment at year end is $220,000. Blue classified this investment as held-to-maturity. Determine if an impairment exists and record any necessary resulting journal entries.

Texan Textiles invested in two equity securities in December 2018. Neither investment represented significant influence. The company's fair value adjustment account has a balance of $0. The following information related to these securities: Security Purchase Date Cost Fair Value - 12/31/18 1 12/1/18 \ 27,300 \ 32,500 2 12/3/18 44,600 37,750 Record journal entries needed for December relating to these securities.

Bonds are priced in the market so that their ________ is the same as the market rate of interest.

Jules & Associates purchased the bonds of Jay Bird Retailers during the year. Jules intends to hold onto these bonds to collect all principal and interest, but due to financial constraints, will most likely have to sell this investment on the open market within the next year. How should Jules classify this investment?

Which of the following statements is correct about the fair value option under IFRS?

On January 7, 2018, Webb Industries purchased 1,000 shares of Class A common stock in Bloomberg Corporation for $50,000. Webb does not have significant influence or control over Bloomberg. Although Class A shares are not actively traded, Class B shares are traded and are nearly identical aside from being publicly traded. At the end of 2018, Class B shares are trading for $56 per share. Webb makes the appropriate election to measure the investment based on observable price changes for similar securities. On December 12, 2019, Webb Industries sells the Bloomberg stock for $60,000. As of the end of 2019, Webb has no investments in equity securities. Prepare the journal entries to record the purchase of the stock, the sales of the stocks, and any required adjustments at the end of 2018 and 2019.

On 1/1/19, Lantana Loan Co., a calendar-year company, accepts a 4%, $200,000 three-year loan that pays interest semi-annually on 6/30 and 12/31 from Diamond Distributors, when the market rate of interest was 6%. In exchange for the note, Diamond agrees to make semi-annual interest payments and repay the full $200,000 at maturity. How much cash will Diamond receive in exchange for this note?