Exam 13: Investments

The equity method of accounting for an investment is used when a company purchases

A business combination is recorded at the cost of acquisition, without regard to the seller's ____________________ value.

The fair value method should be used to account for stock investments of less than 20% of the outstanding shares.

The excess of the investor's acquisition cost over the current value of the investee's identifiable net assets is recorded as an intangible asset called ____________________.

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 -Equity and debt investments that management intends to sell in the future, but not necessarily in the near term

P Company paid $500,000 for 100% of the net assets (assets less liabilities)of S Company. The current value of S Company's net assets was only $475,000. As a result of this acquisition, P Company must recognize

If the parent owns 90% of the subsidiary's stock, then 90% of the subsidiary's assets and liabilities are included in the consolidated balance sheet.

The equity method of accounting is used if the investor owns between 20-50% of another company and the investor is able to exert influence over the other company.

____________________ securities are debt investments that are accounted for on an amortized cost basis because management intends to hold the investment until the debt contract requires the borrower to completely repay the debt.

On January 1, 2012, Teddy Bear Company purchased 25% of the common stock of one of its major suppliers-Fluff n' Stuff, for $1,000,000 cash. On November 1, 2012, Fluff n' Stuff declared and paid a cash dividend of $50,000. Further, for the year ended December 31, 2012, Fluff n' Stuff reported net income of $200,000. A)Which method of accounting for investments should be used for the Fluff n' Stuff stock? B)Record all of the necessary journal entries for this investment during 2012. C)What will be the balance in the investment account at December 31, 2012?

Treasure Distributors, Inc. had no investments in short-term marketable securities prior to 2012. During 2012, the company engaged in the following investment transactions: At the end of 2012, the Toledo Company stock had a market value of $18 per share.

A passive investment is one in which the owner

If the investor holds enough common stock to control the investee (50% or more common stock ownership), then the two corporations are no longer separate accounting entities and therefore they no longer may maintain separate accounting records.