Exam 15: Investments

When a parent has borrowed cash from the subsidiary company,the related receivable and payable are eliminated in preparing a consolidated balance sheet so that

Dividends received on investments are accounted for in the same way under the cost-adjusted-to-market and the equity methods.

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

Summers Corporation purchased 15,000 shares of Ritchie Corporation common stock for $60 per share on January 2,2012.Ritchie Corporation reported net income of $1,500,000 for 2012 and paid dividends of $300,000 during 2012.Ritchie has a total of 50,000 shares of common stock outstanding.The entry that would be recorded to recognize the receipt of cash dividend is:

It is possible that an investor with less than a 50 percent ownership interest may qualify for accounting recognition of control and appropriately prepare consolidated financial statements.

When bonds are purchased between interest dates,the buyer must pay (in addition to the bonds' cost)the amount of interest that has accrued since the last interest payment date.

The financial statements of a foreign subsidiary are never restated in terms of the reporting currency before consolidation takes place.

Match each definition with the correct term below. -Equity method

When the equity method is used to account for a long-term investment in stock of another company,the carrying value of the investment is affected by

Under the cost-adjusted-to-market method of accounting for an investment,

Scott Company owns 100 percent of the stock of Roanoke Company.The separate income statements for the two companies for the year ended December 31,2013,are provided below.Scott Company sold a product to Roanoke Company for $56,000,and Roanoke Company sold it to a customer for $80,000.Roanoke paid Scott $6,000 interest on a loan from Roanoke.Complete the work sheet by providing the amounts for the Eliminations columns and the Consolidated Income Statement column.

Most long-term bond investments are classified as held-to-maturity securities.

All the interest income on U.S.Treasury bills is recorded at maturity.

A company may pay more than book value for a subsidiary because the assets of the subsidiary are undervalued on its balance sheet.

Rosche Company purchased 75 percent of Grubbs Company for $78,000.Complete the following work sheet by providing the figures for the Eliminations columns and the Consolidated Balance Sheet column.

An eliminating entry is required both when a subsidiary owes a parent company and when the parent owes the subsidiary.

When a parent company and a 100 percent owned subsidiary company are consolidated using the purchase method,only the stockholders' equity of the parent company remains.

Which is the only type of investment that is always classified as short-term?

At the beginning of the current year,Morris Corporation acquired 100 percent of the common stock of Nash Corporation for $200,000.Nash's stockholders' equity included common stock for $125,000 and retained earnings of $75,000.Prepare the eliminating entry in journal form that would appear on the work sheet for consolidating the balance sheets of the two entities as of the acquisition date.(Omit explanations.)

Available-for-sale debt securities are valued on the balance sheet at