Exam 13: Finance and Stock Market Equilibrium

If the acquisition cost exceeds the current value of the net assets (assets minus liabilities) acquired, the investor must also be purchasing an intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location.

Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?

Match the following terms to their correct definition: -An intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location

In present value problems, the interest rate is also called the __________________.

Cash flows are described as either single cash flows or _______________.

The excess of the investor's acquisition cost over the current value of the investee's identifiable net assets is recorded as an intangible asset called ____________________.

Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings bond?

Match the following terms to their correct definition: -Any voting stock not held by the parent in situations where consolidation is required because the investor acquires between 50% and 100% of the investee's stock

The present value of an annuity is the discounted future value of cash flows made at regular intervals.

You are the accounting manager for a mid-sized electronics retailer. Your accounting intern is having trouble understanding how your company accounts for its investments in the stock of other companies. You just spent the better part of the morning reviewing in detail all of the recording and reporting requirements but the intern is still fuzzy. Complete the following table to compare and contrast for your intern the requirements for the different types of stock investments that your company might make. Be sure to use the legend provided. Investments in Equity Securities Legend: Accounting Method: Equity method, Equity method + Consolidation, or Fair value method Impact of Dividend Receipts: Decrease investment, Eliminated, or Increase income Reporting of unrealized gains/losses: Balance sheet, Income statement, or Not recognized

Match the following terms to their correct definition: -Situation where the investor owns over 50% of the outstanding common stock and is therefore deemed to own the investee

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year) into an account that earns 4% interest compounded annually?

A purchased company must be recorded at the value of the cash and other consideration given by the acquiring company.

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

When an investor is able to exert significant influence over another company, the ____________________ method of accounting is used for the investment.

Securities issued by a corporation as a form of ownership in the business, such as common stock and preferred stock, are called equity securities.

Consolidation is required when a parent acquires between 50% and 100% of the subsidiary's stock. Any voting stock not held by the parent is called the ____________________.

A business combination is recorded at the cost of acquisition, without regard to the seller's ____________________ value.

The fair value method should be used to account for stock investments of less than 20% of the outstanding shares.

When the present value of an annuity is calculated, which of the following is not required?