Exam 13: Investments

Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a

An investor's available-for-sale securities had increased in market value from $50,000 to $55,000 as of the balance sheet date. Which of the following journal entries would be required?

On January 1, 2012, Parent, Inc., purchased 80% of the outstanding common stock of Sub Corporation for $750,000. Since Parent has control over Sub, a consolidated balance sheet must be prepared from the individual balance sheets of both companies. Complete the following worksheet to prepare the consolidated balance sheet on January 1, 2012.

Which method of accounting for investments results in unrealized gains and losses because the investments must be marked to market?

Thomkin Enterprises purchased several investment securities on November 1, 2013. Various transactions and market activities occurred regarding these investments between acquisition and December 31st (the company's year-end), as shown below: Additional information: Prepare journal entries to record the purchase of the securities, the receipt of dividends and interest, the sale of the TRL stock, and the end-of-year mark-to-market adjustments. For the end-of-year entries, indicate how the resulting gains or losses should be recognized in Thomkin's year-end financial statements.

Trattoria, Inc. engaged in the following investment transactions during 2013: At December 31, 2013, the market value of Tarbet's stock was $54.

Select the incorrect statement from the following:

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Debt investments that management intends to hold until the debt contract requires the borrower to repay the debt in its entirety

When a company purchases less than 50% of the equity securities of another company, which of the following statements is true?

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -An intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location

The journal entry required to record the receipt of dividends under the fair value method of accounting for investments includes a

____________________ securities, such as bonds, exist when another entity owes the security holder some combination of principal and interest.

Minority (or noncontrolling)interest is disclosed when the parent owns more than 50%, but less than 100% of the outstanding common stock.

Ownership in a corporation is represented by shares of common or preferred stock called ____________________ securities.

____________________ securities are equity or debt investments that are bought and sold frequently and are typically owned for less than one month.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Method of accounting required for all passive investments in which the investment is valued at the price for which the investor could sell the asset in an orderly transaction between market participants

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Situation where the investor owns less than 20% of the common stock of another company and therefore is not attempting to exert influence over the operating and financial policies of the investee

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

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Exists when another entity owes the security holder some combination of interest and principal

Tail Winds Corporation acquired the following equity securities during 2013: The company's investment in these two companies is passive and classified as available-for-sale. During 2013, TICO paid a dividend of $1.10 per share and Thankful paid a dividend of $1.75 per share. At December 31, 2013, the market value of these securities was $79 per share for TICO and $23 per share for Thankful.