Exam 15: Investments

Which type of investment,if any,could be classified as short- or long-term,as well as debt or equity?

Perri Company buys 80 percent of the stock of McGrath Company for $150,000.McGrath Company has contributed capital of $100,000 and retained earnings of $60,000.The eliminating entry that would appear on the work sheet for consolidating the balance sheets of two companies is:

Craig Company buys 70 percent of the stock of Essex Company for $182,000.Essex Company has contributed capital of $140,000 and retained earnings of $120,000.The consolidated financial statements would contain

When a company holds U.S.Treasury bills,it would debit Interest Income and credit Short-Term Investments at the end of the accounting period (assuming it is prior to the T-bills' maturity).

Match each definition with the correct term below. -Held-to-maturity securities

Orlov Corporation purchased 22,000 shares of Matsey Corporation common stock for $40 per share on January 1,2012.Matsey reported net income of $120,000 for 2012 and paid dividends of $45,000 during 2012.As of December 31,2012,the market value of Matsey Corporation common stock was $39 per share.Assuming the shares owned by Orlov represent 10 percent of the total outstanding stock of Matsey,the year end adjustment entry in Orlov Corporation's books is:

Orlov Corporation purchased 8,000 shares of Matsey Corporation common stock for $40 per share on January 1,2012.Matsey reported net income of $120,000 for 2012 and paid dividends of $42,000 during 2012.As of December 31,2012,the market value of Matsey Corporation common stock was $40 per share.Assuming the shares owned by Orlov represent 10 percent of the total outstanding stock of Matsey,the entry to record the receipt of dividend income in Orlov Corporation's books is:

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: June 1, 2012 Pand cash for the followng long-term investments: 5,000 shares Wayne Corporation common stock (representing 5 percent of outstanding stock) at \ 40 per share; 3,000 shares Upshur Corporation common stock (representing percent of outstanding stock) at \ 24 per share. Dec. 31,2012 Quoted market prices at year end: Wayne common stock, \ 35 ; Upshur common stock, \ 27. April 1, 2013 A change in policy required the sale of 1,000 shares of Wayne Corporation common stock at \ 38. July 1, 2013 Received a cash dividend from Upshur Corporation equal to \ .30 per share. Dec. 31, 2013 Quoted market prices at year end: Wayne common stock, \ 39 ; Ushur common stock \ 22. The entry to adjust the Allowance to Adjust Long-Term Investments to Market in 2013 is:

Which of the following is not a category of investments?

The year-end adjusting entry to reflect an increase in the value of trading securities includes a

A credit balance in the account Allowance to Adjust Long-Term Investments to Market is disclosed in the financial statements as a

With few exceptions,all subsidiaries in which the parent company owns a controlling interest (more than 50 percent)must be consolidated with the parent company for financial reporting purposes.

Match each definition with the correct term below. -Consolidated financial statements

Coll Company (the parent company)manufactured a product at a cost of $150 and sold it to Obman Company,a subsidiary of Coll,for $200.Obman Company sold the product to its customer for $284.As a result of these transactions,how much gross profit will appear on a consolidated income statement?

All of the following are conditions that could affect the valuation of investments on the balance sheet except

On January 1,2013,Preston Corporation purchased 5,000 shares of Nicholas Corporation common stock for $120 per share.Preston's investment represents 30 percent of the total outstanding shares of Nicholas.During 2010,Nicholas paid total dividends of $200,000.Preston appropriately used the equity method to account for this investment and accordingly reported the investment at a carrying value of $780,000 on December 31,2013.Compute the amount of earnings reported by Nicholas Corporation for 2013.

Which of the following entries would not require an eliminating entry when one is preparing consolidated financial statements?

Eliminations are important because they avoid double counting when consolidated financial statements are prepared.

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: June 1, 2012 Pand cash for the followng long-term investments: 5,000 shares Wayne Corporation common stock (representing 5 percent of outstanding stock) at \ 40 per share; 3,000 shares Upshur Corporation common stock (representing percent of outstanding stock) at \ 24 per share. Dec. 31,2012 Quoted market prices at year end: Wayne common stock, \ 35 ; Upshur common stock, \ 27. April 1, 2013 A change in policy required the sale of 1,000 shares of Wayne Corporation common stock at \ 38. July 1, 2013 Received a cash dividend from Upshur Corporation equal to \ .30 per share. Dec. 31, 2013 Quoted market prices at year end: Wayne common stock, \ 39 ; Ushur common stock \ 22. The entry to set up the Allowance to Adjust Long-Term Investments to Market in 2012 is:

The ability of an investing company to affect the operating and financial policies of another company,even though the investor holds less than 50 percent of the voting stock,is known as