Exam 12: Investments: Debt and Equity Securities

Lilburn Inc. purchased $56,000 of Metter Corporation's 12 percent, 10-year bonds on January 1, 2011, for $59,360 plus accrued interest. Interest on the bonds is payable on April 1 and October 1. On January 1, 2012, Lilburn sold the bonds for 103 plus accrued interest. As a result of the sale, Lilburn should debit Cash for

Which of the following is NOT a typical reason that a company would prefer a debt security over an equity security?

Changes in fair value of securities are reported in the income statement for which type of securities?

On May 1, one hundred shares of stock were originally purchased for $124 per share and are being held as trading securities. The price decreased to $116 per share on August 1 and then increased to $132 on December 31. At what amount should the investment be valued in the December 31 balance sheet?

When investors purchase bonds between interest dates, they

Augsburg Corporation recorded the following transactions for its long-term investments during 2012: -Refer to Exhibit 12-1. Given the information above, on August 26, Augsburg should

The equity method of accounting for an investment in the common stock of another company should be used when the investment

On January 1, 2012, Ya-Ling Co. paid $500,000 for 20,000 shares of Chen Co.'s common stock and classified these shares as trading securities. The fair value of Chen Co.'s stock at December 31, 2012, is $27 per share. What is the net asset amount (which includes both investments and any related market adjustments) attributable to the investment in Chen that will be included on Ya-Ling's balance sheet at December 31, 2012?

On February 19, 2012, Jose Inc. acquired 18,000 shares of Luis Corporation stock at $45 per share. Jose has 50,000 shares outstanding. On December 31, 2012, Luis common stock had a closing market price of $26 per share. Assuming that the decline in market price is considered to be temporary, at December 31, Luis would

On January 2, 2012, Murray Corporation bought 15 percent of Castro Corporation's capital stock for $60,000 and classified it as available-for-sale securities. Castro's net income for the year ended December 31, 2012, was $100,000. During 2012, Castro declared a dividend of $140,000. On December 31, 2012, the fair value of the Castro stock owned by Murray had increased to $90,000. How much should Murray show on its 2012 income statement as income from this investment?

A net unrealized decrease in the value of available-for-sale securities (considered as a whole) should be reflected in the current financial statements as

In 2012, Vidalia had the following activities in long-term investments: Prepare the necessary journal entries for Vidalia's investment in Woodbine common stock.

If a 12 percent, $16,000 face value bond sells for $14,000, the effective interest rate will be

Nguyen Inc. began business on January 1, 2012, and at December 31, 2012, Nguyen had the following investment portfolios of equity securities: Unrealized losses at December 31, 2012, should be recorded with corresponding charges against Income and Stockholders' Equity of

What are the two general types of securities purchased by companies?

Which type of securities is purchased with the intent of holding the security until it matures?

Johnson Company owns part of three different subsidiaries. The balance sheet and the income statement for Johnson Company and its three subsidiaries are shown below. Johnson Company currently accounts for the ownership of the three subsidiaries using the equity method.

Harvey Corporation purchased 1,200 of the 3,000 outstanding shares of Michael Company common stock for $50 per share. Given this information, Harvey Corporation should account for the investment in Michael Company stock using the

Which category includes only debt securities?

Barry Inc. carries the following marketable equity securities on its books at December 31, 2011 and 2012. All securities were purchased during 2011 and there were no beginning balances in any market adjustment accounts.