Exam 14: Understanding Investments in Debt and Equity Securities

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

On January 1, 2022, Tri-State Company purchased at face value, a $1,000, 5%, bond that pays interest annually on January 1.Tri-State Company has a calendar year end.The entry for the receipt of interest on January 1, 2023 is

The Fair Value Adjustment account

FTX Company owns 10% interest in the stock of Zip Corporation.During the year, Zip pays $5,000 in dividends to FTX, and reports a net loss of $100,000.FTX Company's investment in Zip will affect FTX net income by a

If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its present value is

If a company acquires a 40% common stock interest in another company

Interest is the difference between the amount borrowed and the principal.

At the end of its first year, the securities portfolio consisted of the following common stocks, all of which represent less than 20% ownership. The unrealized loss to be recognized under the fair value method is

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

Which of the following would not be reported under "Other Revenues and Gains" on the income statement?

A higher discount rate produces a higher present value.

The Fair Value Adjustment account is a(n)

On January 1, 2022, Orleans industries acquired a 15% interest in Florida Corporation through the purchase of 12,000 shares of Florida Corporation common stock for $640,000.During 2022, Florida Corp.paid $160,000 in dividends and reported a net loss of $200,000.Orleans is able to exert significant influence on Florida.However, Orleans mistakenly records these transactions using the cost method rather than the equity method of accounting.Which of the following would show the correct presentation for Orlean's investment using the equity method?

When investing excess cash for short periods of time, corporations invest in debt securities and stock securities.

When a company owns more than 50% of the common stock of another company

If Sloane Joyner invests $10,514.81 now and she will receive $30,000 at the end of 11 years, what annual rate of interest will she be earning on her investment?

Charleston Co.purchased 60, 6% APS Company bonds on January 1, 2022 for $60,000 cash.Interest is payable annually on January 1.The entry to record the December 31 interest accrual would include a

On January 1, 2022, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1.JBT Company has a calendar year end.The entry for the receipt of interest on January 1, 2023 is

A purchase of common stock of Blue Wave Corporation for $29,000 was sold three months later for $30,000.The entry to record the sale would include a

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.