Exam 17: Investments

Use the following information for questions 97 and 98. Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. -If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be

Under the fair value method, the investor reports as revenue its share of the net income reported by the investee.

Hummel Company purchased a put option on Olney common shares on July 7, 2014, for $100. The put option is for 200 shares, and the strike price is $30. The option expires on January 31, 2015. The following data are available with respect to the put option: InstructionsPrepare the journal entries for Hummel Company for the following dates: (a) July 7, 2014-Investment in put option on Olney shares. (b) September 30, 2014- Hummel prepares financial statements. (c) December 31, 2014- Hummel prepares financial statements.(d) January 31, 2015-Put option expires.

A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income.

During 2014 Logic Company purchased 8,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 2,000 shares of Midi, Inc. for $35 per share. At December 31, 2014 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2014 related to its investment in Midi, Inc. stock?

Use the following information for questions 74 and 75. Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. -At April 1, 2015, Landis Company sold the Ritter bonds for $2,060,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960. Assuming Landis Company has a portfolio of Available-for-Sale Debt Securities, what should Landis Company report as a gain or loss on the bonds?

On its December 31, 2014, balance sheet, Trump Company reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2015, the fair value of the securities was $585,000. What should Trump report on its 2015 income statement as a result of the increase in fair value of the investments in 2015?

If a company transfers held-to-maturity securities to available-for-sale securities, the unrealized gain or loss is recognized in income.

Use the following information for questions 105 and 106. Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. -How much investment income should Dexter report in 2014?

On December 31, 2014, Patel Company purchased equity securities as trading securities. Pertinent data are as follows: On December 31, 2015, Patel transferred its investment in security C from trading to available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2015?

An option to convert a convertible bond into shares of common stock is a(n)

All cash dividends received by an investor from the investee decrease the investment's carrying value under the equity method.

The following information is available for Irwin Company for 2015: Instructions(1) Determine other comprehensive income for 2015.(2) Compute comprehensive income for 2015.

A reclassification adjustment is reported in the

A variable-interest entity has

On January 1, 2015, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $1,120,000 at December 31, 2015. Ace reported net income of $700,000 for the year ended December 31, 2015, and paid common stock dividends totaling $280,000 during 2015. How much did Reston pay for its 25% interest in Ace?

A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation.

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes

During the course of your examination of the financial statements of Doppler Corporation for the year ended December 31, 2015, you found a new account, "Investments." Your examination revealed that during 2015, Doppler began a program of investments, and all investment-related transactions were entered in this account. Your analysis of this account for 2015 follows: Additional information:1. The fair value for each security as of the 2015 date of each transaction follow: 2. All of the investments of Doppler are nominal in respect to percentage of ownership (5% or less)."3. Each investment is considered by Doppler's management to be available-for-sale. Instructions(1) Prepare any necessary correcting journal entries related to investments (a) and (b).(2) Prepare the entry, if necessary, to record the proper valuation of the available-for-sale equity security portfolio as of December 31, 2015."

Use the following information for questions 99 through 102. The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: -If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $175,000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been