Exam 15: Investments and Fair Value Accounting

On January 1, Butte Company's valuation allowance for trading investments account has a debit balance of $23,200. On December 31, the cost of the trading securities portfolio was $80,000. The fair value was $98,000. Which of the following would Butte report on the income statement for the current year?

Investment in Bonds is reported on the balance sheet at lower of cost or market.

On July 5, Winter Company had a market price of $58 per share of common stock. For the prior year, Winter Company had paid an annual dividend of $3.48 per share. What is the dividend yield for Winter Company?

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the year ending December 31, McGuire earned income of $48,000 and paid dividends of $14,000. Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire.

Any difference between the fair market values of the securities and their cost is a realized gain or loss.

Financial statements in which financial data for two or more companies are combined as a single entity are called

The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

The cost and fair value of the trading securities held by Lindy Company as of December 31 are as follows:​​ (a) Complete the table above to find the total cost and fair value for the company's trading securities portfolio. (b) Calculate and record the required December 31 adjustment. (c) Explain how the adjustment from part (b) is reported on Lindy's financial statements.

Match each of the definitions that follow with the appropriate investment term (a-j). -The value assigned to held-to-maturity securities

Investments in bonds that management intends to hold to maturity are called trading securities.

On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest. Present entries to record the following transactions:Bee Company: (a)Purchase of bonds on August 1, Year 1. (b)Receipt of first semiannual interest amount on December 31, Year 1. (c)The sale of the bonds on March 1, Year 2.

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

Which of the following would be considered an "other comprehensive income" item?

Investments in stocks that are expected to be held for the long term are listed in the Stockholders' equity section of the balance sheet.

Foreign currency translation adjustment is an example of an item that would be included in other comprehensive income.

Held-to-maturity securities are reported on the balance sheet at fair market value.

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Cash is used for all of the following activities except

To record a bond investment made between interest payment dates, Investment in Bonds would be debited and Cash and Interest Revenue would be credited.