Exam 16: Investing Assets

Falcon Wholesalers purchased equity securities during 2019 and 2020, with no significant influence in any of the investments. It had not purchased equity securities prior to 2019, and has purchased no other equity securities besides the following: Purchase Purchase Fair Value Fair Value Date Selling Security Purchase Date Purchase Price Fair Value Fair Value Date Sold Selling Price 1 12/3/19 \ 20,000 \ 22,000 N/A 1/3/20 \ 21,000 2 12/10/19 24,000 18,000 N/A 1/7/20 20,000 3 12/4/20 16,000 N/A 19,000 1/9/21 19,000 4 12/13/20 33,000 N/A 37,000 1/8/21 42,000 Prepare all necessary journal entries for 2019 and 2020 related to these securities.

Summarize the financial disclosure requirements for investments accounted for under the equity method.

If a company elects the fair value option to account for equity securities, what will be recorded differently when there is no significant influence?

On January 1, Austin Corporation purchased 30% of the outstanding voting common stock of San Marcos Industries common stock for $270,000 cash. On that date, the book value and fair value of the net assets of San Marcos Industries were $900,000. On June 30, San Marcos paid cash dividends of $20,000 to its shareholders. San Marcos' net income as of December 31 was $120,000. The fair value of the shares on December 31 was $300,000. Prepare the journal entries necessary to record the above transactions on Austin Corporation's books during the year.

Where are changes in fair value for available for sale securities reported?

A company reports unrealized gains or losses from trading debt securities in other comprehensive income.

Which of the following must be disclosed for available-for-sale securities?

Trader Trust accepts a $500,000 non-interest bearing 20-year note from Coffee Co. in exchange for Cash on 1/1/19. Coffee Co. promises to repay $500,000 at maturity. The market rate on 1/1/19 was 4%. What is the carrying value of this note on the balance sheet on 12/31/19?

What key questions must be addressed when accounting for investments in debt and equity securities?

When must a company generally elect the fair value option for reporting financial assets?

Trader Trust accepts a $500,000 non-interest bearing 10-year note from Coffee Co. in exchange for Cash on 1/1/19. Coffee Co. promises to repay $500,000 at maturity. The market rate on 1/1/19 was 4%. Calculate the value of the note and complete the entire amortization table for this note, then record journal entries for 2019 (assuming Trader is a calendar-year company).

How are debt and equity investments classified when the company does not exercise significant influence?

As of 12/31/20, XYZ Inc. had available-for-sale debt investments with a fair value of $509,000, an amortized cost of $530,000, and a credit 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?

Altima Corporation actively manages a portfolio of publicly traded stock funded with excess cash. The purpose of the portfolio is to generate gains on sales and the portfolio is reported at fair value. This method of accounting is consistent with the qualitative characteristic of ________ from the conceptual framework.

What type of account is Discount on Notes Receivable?

What is the initial reporting basis for all equity investment securities?

When a note receivable is issued at a discount, ________.

Companies can elect to switch to the fair value option for reporting assets at any point during the asset's life.

Spike's Auto invested in bonds of DEF, which it intends to hold until maturity 1/1/22. These 5-year bonds were dated 1/1/17, had a face value of $100,000, and pay 4% interest annually on 12/31. Spike's purchased these bonds when the market rate of interest was 6%. Complete the entire amortization table for this investment and record all entries for the life of the investment, rounding all values to the nearest dollar.

Keller 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 Net Income of $2,250,000 for the year. How will Angel's Net Income impact Keller's books?