Exam 16: Investing Assets

Sheehan & Co. purchased 35% of the outstanding shares of Jules & Associates. Jules then declared dividends at year end. How will these dividends effect the investment account for Sheehan?

If an investor company has control over an investee company, the investment is valued at the fair value of the stock on the balance sheet date.

Only debt securities can be classified as held-to-maturity securities.

On January 3, 2019, Sheppard Corporation purchased 25% of Meredith Corporation's common stock for $65,000. The net asset's book value is equal to the fair market value. 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 $72,000; in 2020, it increased again to $80,000. What would be the balance in the investment account as of December 31, 2019?

Bateman Enterprises invested in the bonds of Greater Gloucester on January 1, 2018. These 10-year, $300,000 bonds pay interest of 3% with semiannual payments every June 30 and December 31. The effective rate of interest for similar bonds on January 1 was 4%. What is the semi-annual interest payment received by Bateman for these bonds?

Jardon 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 be recorded by Jardon?

Which of the following would not be disclosed for trading securities?

For available-for-sale securities, companies must disclose whether the conversion of convertible securities of the investee would have a significant effect on the reported income from the investment.

On September 30, 2019, Angel Outfitters invested in 10-year, $900,000, 7% bonds of ABC Co. These bonds were dated January 1, 2019, and pay interest annually on December 31. Angel paid face value plus accrued interest for these bonds, and intends to hold these bonds until maturity. Which of the following is the correct journal entry to record this investment?

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

Accounting for equity securities with no significant influence remains unchanged if a company elects the fair value option for reporting this investment. Why?

Which of the following statements is incorrect?

Equity securities are an investment in the common or preferred shares of another company.

Investments in debt securities that cannot be readily classified in two reporting categories are classified as ________.

Meyer Jewelers purchased 18,000,000 of the outstanding 60,000,000 shares of Angel & Associates. Meyer has significant influence over Angel, so Meyer 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 $7,900,000. 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, which of the following is the correct journal entry to record the difference in net assets for this investment on 12/31?

On April 1, 2018, Ellucian Corporation invested in the bonds issued by the City of Westminster on January 1, 2018. These 10-year, $700,000 bonds pay interest of 2% with semiannual payments every June 30 and December 31. Ellucian paid par value plus accrued interest. What is the amount of accrued interest paid at the time of purchase?

If an investor has significant influence over an investee, but doesn't control the decisions that are made, the investor must use the equity method to account for this investment.

IFRS requires additional disclosures of summarized financial information of the investee, including total assets, liabilities, revenue, and net income or loss.

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 $59 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 $63,000. What is the gain that is reported on the sale of Bloomberg Corporation in 2019?