Exam 13: Investments and Long-Term Receivables

On January 1, 2017, the Z Corporation acquired a 20% interest in D Company by purchasing 4,800 shares of its 24,000 outstanding shares of common stock. The acquisition price was $30 per share. On the date of purchase, D Company's net assets were as follows: During 2017, D Company earned income of $70,000 and paid dividends of $18,000. The depreciable assets have a ten-year remaining life and no residual value. Required: Prepare all of the journal entries on Z Corporation's books to record the acquisition and subsequent events in 2017 related to the investment in D Company.

Investments in debt and equity securities that are held for current resale by banks and brokerage firms are termed

Dividends on investments classified as trading that have been declared as of year-end but have not yet been received should be recognized in income when

List 3 investments that are debt securities and 3 investments that are equity securities.

For Held-to-Maturity investments in debt securities, the investor company is required to disclose both the aggregate fair value of the investment and also the change in the net unrealized holding gains or loss to be included in the income statement.

Quadra Corp. insured its president on January 1, 2017, with a $2,000,000 life insurance policy. The annual premium was $60,000 payable on January 1 of each year. Cash surrender values increased each year by 5% of the premium paid. Dividends received in the first year 2017) amounted to $2,000 and increased by 10% each year, accruable at year-end only. Required: a. Compute insurance expense for 2018. b. Prepare journal entries for July 1, 2019, when the president died.

Pope, Inc. has life insurance policies on its officers' lives. Annual premiums amount to $5,000. At the end of 2017, the cash surrender value of the policies totaled $18,200. Dividends received by Pope from the insurance company amounted to $500 in 2017. The insurance expense recognized by Pope in 2017 was $3,500. What was the amount of cash surrender value of these policies on January 1, 2017?

Transferring an investment from the trading category into any other category does not require that any entry be made to the company's accounts because any unrealized holding gains or losses on that investment have already been recognized.

Trading securities were sold on January 3, 2018, for $65,000. Those securities were purchased for $52,000 on November 21, 2017, and they had a fair value on December 31, 2017, of $57,000. The entry to record the sale would include a

Exhibit 13-2 On January 1, 2017, the Clutz Company purchased 30% of the 1,000,000 shares of Nancy's common stock for $15,000,000 when 30% of Nancy's net assets totaled $12,000,000. The excess of purchase price over the underlying assets was attributable to undervalued depreciable plant assets with a remaining useful life of ten years. Nancy reported net income of $8,000,000 and paid cash dividends of $2,000,000 during 2017. -Refer to Exhibit 13-2. The investment in Nancy Company stock should be reported on Clutz's December 31, 2017, balance sheet at

Which of the following disclosures is not required by current GAAP for investments in securities?

An interest rate swap in which a company has a fixed rate of interest and pays a variable rate is called a

On January 1, 2017 Chester sold land to Melissa's Company, accepting a 3-year $75,000 non-interest-bearing note due in three equal installments of $25,000 beginning December 31, 2017. The land had a book value of $55,000, the fair value for the land was not determinable. An appropriate interest rate for a note of this caliber is 9%. Required: Prepare the journal entries on Chester's books to record: 1) the sale 2) the annual interest income and receipt of each $25,000 installment

The use of the effective interest method to amortize a discount associated with the acquisition of an investment in bonds results in

When a life insurance policy contains a guarantee that the company that purchased the policy is entitled to a return equal to the amount of the cash surrender value of the policy, a portion of the premium is recorded to a long term liability account.

Discuss the three categories of investments described in the FASB's current standard for investments in marketable securities.

Exhibit 13-2 On January 1, 2017, the Clutz Company purchased 30% of the 1,000,000 shares of Nancy's common stock for $15,000,000 when 30% of Nancy's net assets totaled $12,000,000. The excess of purchase price over the underlying assets was attributable to undervalued depreciable plant assets with a remaining useful life of ten years. Nancy reported net income of $8,000,000 and paid cash dividends of $2,000,000 during 2017. -Refer to Exhibit 13-2. What should the income reported by Clutz during 2017 from its investment in the Nancy Company be?

Exhibit 13-03 On January 1, 2017, Train, Inc. accepted an $80,000, non-interest bearing 3 year note in exchange for equipment it sold to Steam Company. Train originally purchased the equipment for $125,000, and it had a book value of $75,000 on the date of the sale. The note was non-interest-bearing. An assumed 11% interest rate is implicit in the agreement. Actual information for 11%, three periods, follows: -Refer to Exhibit 13-03. What amount should Train record for the discount on Notes Receivable?

Define a derivative financial instrument, provide two examples of derivative financial instruments, and list one concept involving derivatives.

Chapin Company purchased investments in 2017 at a cost of $200,000 and recorded them as trading securities. Their market values totaled $250,000 and $230,000 on December 31, 2017, and December 31, 2018, respectively. The entry required on December 31, 2018, would include a