Exam 15: Investments

On January 1,2013,Hilary Corporation acquired 100 percent of the common stock of Gooden Corporation for $3,250,000.At the date of acquisition,Gooden Corporation reported total assets of $4,200,000,liabilities of $1,200,000,common stock of $2,200,000,and retained earnings of $800,000 on its balance sheet.An appraisal on the acquisition date showed that the fair value of Gooden's net identifiable assets was equal to their book value.Prepare the eliminating entry in journal form that would appear on the work sheet for consolidating the balance sheets of the two companies as of the acquisition date.(Omit explanations.)

In preparing consolidated financial statements,all of the following commonly require elimination entries except a(n)

A Goodwill from Consolidation account may rise when a parent acquires a subsidiary company's common stock at a price that is less than the stock's book value.

Although the preparation of a consolidated balance sheet requires elimination entries,a consolidated income statement may always be prepared without any elimination entries.

If a long-term investment suffers a permanent decline in value,a loss only has to be recorded if the investment is sold.

If a parent company has four subsidiaries,there are five separate legal entities represented in this group.

In the journal provided,prepare the entries for the transactions described below.(Omit explanations.)

Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

Isber Corporation purchases 80 percent of the voting stock of Bossart Corporation for $175,000.At the date of acquisition,the fair market value of Bossart's identifiable net assets was equal to their book value.Bossart has common stock of $80,000 and retained earnings of $120,000.The elimination entry necessary to prepare a consolidated balance sheet for this date is:

Another term for short-term investments is marketable securities.

A short-term investment in a U.S.Treasury bill costs $48,400 and will mature in six months at $50,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

Match each definition with the correct term below. -Available-for-sale securities

The equity method generally should be used to account for an investment in stock when the level of ownership is

In the United States,insider trading is considered

Trading securities are valued on the balance sheet at

When the market value of available-for-sale securities exceeds cost,an unrealized loss appears in stockholders' equity as an addition.

Minority interest is reported as a(n)

The cost-adjusted-to-market method of accounting for investments allows for a departure from cost when the market value of the investment falls below or rises above cost.

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 record the receipt of the cash dividend from Upshur Corporation is:

Clay Corporation owns a 40 percent interest in the stock of Gilmer Corporation.During 2013,Gilmer pays $25,000 in dividends to Clay and reports $107,000 in net income.Clay Corporation's investment in Gilmer will increase Clay's income before income taxes by