Exam 17: Investments

Kern Company purchased bonds with a face amount of $800,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and paid accrued interest for three months of $20,000. The amount to record as the cost of this long-term investment in bonds is

On January 2, 2015 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed dividends of $360,000. The ending balance in the Investment in Pod Company account at December 31, 2015 was $640,000 after applying the equity method during 2015. What was the purchase price Pod Company paid for its investment in Jobs, Inc?

On January 2, 2015, Tylor Company issued a 4-year, $600,000 note at 6% fixed interest, interest payable semiannually. Tylor now wants to change the note to a variable rate note. As a result, on January 2, 2015, Tylor Company enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.6% for the first 6 months on $600,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.6% on June 30, 2015. Instructions (a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2015. (b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2015.

Use the following information for questions 103 and 104. Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. -If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investment (Darby) account on December 31, 2015 should be

Use the following information for questions 87 and 88. Instrument Corporation has the following investments which were held throughout 2014-2015: -What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporation's balance sheet at December 31, 2014?

Trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the

An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a

Presented below are unrelated cases involving investments in equity securities.Case I.The fair value of the trading securities at the end of last year was 30% below original cost, and this was properly reflected in the accounts. At the end of the current year, the fair value has increased to 20% above cost.Case II.The fair value of an available-for-sale security has declined to less than forty percent of the original cost. The decline in value is considered to be other than temporary.Case III.An equity security, whose fair value is now less than cost, is classified as trading but is reclassified as available-for-sale. InstructionsIndicate the accounting required for each case separately.

Use the following information for questions 115 through 117. Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. -What should be the gain on sale of this investment in Rich's 2015 income statement?

On November 1, 2014, Horton Company purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $600,000, for $540,000. An additional $15,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2021. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2014 income statement as a result of Horton's available-for-sale investment in Lopez was

Changes in the fair value of a company's available-for-sale debt instruments are included as part of earnings in any given period.

Agee Corporation acquired a 35% interest in Trent Company on January 1, 2015, for $500,000. At that time, Trent had 1,000,000 shares of its $1 par common stock issued and outstanding. During 2015, Trent paid cash dividends of $160,000 and thereafter declared and issued a 5% common stock dividend when the fair value was $2 per share. Trent's net income for 2015 was $360,000. What is the balance in Agee's equity investment account at the end of 2015?

Reclassification in and out of trading securities is permitted under IFRS, although this type of reclassification should be rare.

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must

Use the following information for questions 115 through 117. Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. -The carrying amount of this investment in Rich's December 31, 2014 balance sheet should be

(Essay)Compare the fair value and equity methods of accounting for investments in stocks subsequent to acquisition.

Perez Company began operations in 2013. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement: During 2016, the following events occurred:1. Sold 5,000 shares of BKD for $170,000."2. Acquired 1,000 shares of Horton Common for $40 per share. Brokerage commissions totaled $1,000.At 12/31/16, the fair values for Perez's trading securities were:BKD Common, $29 per shareLRF Preferred, $110 per shareDrake Bonds, $1,020 per bondHorton Common, $45 per share Instructions (a) Prepare a schedule which shows the balance in the Fair Value Adjustment (trading) account at December 31, 2015 (after the adjusting entry for 2015 is made). (b) Prepare a schedule which shows the aggregate cost and fair values for Perez's trading securities portfolio at 12/31/16. (c) Prepare the necessary adjusting entry based upon your analysis in (b) above."

Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee.

Welch Company purchased a put option on Reese common shares on July 7, 2015, for $215. The put option is for 300 shares, and the strike price is $51. The option expires on July 31, 2015. The following data are available with respect to the put option: InstructionsPrepare the journal entries for Welch Company for the following dates: (a) January 7, 2015-Investment in put option on Reese shares. (b) March 31, 2015- Welch prepares financial statements. (c) June 30, 2015- Welch prepares financial statements.(d) July 6, 2015- Welch settles the put option on the Reese shares.