Exam 15: Investments

Held-to-maturity securities are valued on the balance sheet at fair value.

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 sale of 1,000 shares of Wayne Corporation common stock is:

Detailed information about a company's investments is never disclosed in the notes to the financial statements.

It is not possible for one company to influence the operating policies of another company unless it owns more than a 50 percent interest in that company.

Match each definition with the correct term below. -Insider trading

When a parent company owns 100 percent of the outstanding stock of a subsidiary,Goodwill from Consolidation will appear on the consolidated balance sheet when the

Unless there is evidence to the contrary,an investor owning 35 percent of the stock of an investee is assumed to have significant influence.

Which of the following is a true statement regarding elimination entries necessary for the preparation of consolidated financial statements?

When the equity method is used to account for an investment in stock,the investor will report its share of the investee's annual earnings as income in proportion to how much the investee distributes in the form of dividends.

The stockholders' equity section of Ernesto Corporation's balance sheet appeared as follows on December 31,2013: Common Stock \ 150,000 Retained Earnings Total Stockholders' Equity \ 225,000 Prepare entries in journal form to eliminate Brody's investment in Ernesto and Ernesto's stockholders' equity used in preparing the consolidated balance sheet under each of the following assumptions.(Omit explanations.) a.Brody purchased 100 percent of Ernesto for $225,000. b.Brody purchased 100 percent of Ernesto for $250,000.The excess did not apply to any particular asset. c.Brody purchased 80 percent of Ernesto for $180,000.

Raleigh Corporation purchased 3,000 shares of Mingo Corporation common stock for $160 per share on January 1,2012,as a long-term investment.Mingo reported net income of $140,000 and $180,000 for 2012 and 2013,respectively,and paid dividends of $50,000 and $60,000 during 2012 and 2013,respectively.Mingo has a total of 10,000 shares outstanding.Compute the following amounts. a.Amount of investment income recognized by Raleigh Corporation during 2012 b.Balance of Investment in Mingo Corporation account at end of 2012 c.Amount of investment income recognized by Raleigh Corporation during 2013 d.Balance of Investment in Mingo Corporation account at end of 2013

Nate Lobell is the president and sole owner of Gal's Pal Apparel,Inc.Gal's Pal has two wholly owned subsidiaries with which it occasionally transacts business.Nate has been trying to get the consolidated net income of Gal's Pal above the $1,000,000 mark so that he can qualify for a line of credit with his bank.This year Gal's Pal is on track to earn approximately $700,000 after all costs and expenses.Likewise,each subsidiary should have roughly $200,000 in net earnings by year end.Approximately 20 percent of the net earnings of Gal's Pal will come as a result of sales to the subsidiaries,which in turn sold the items to customers for a similar amount of profit.Nate is elated to learn that the expected total earnings of the three companies added together will exceed his $1,000,000 goal.Assuming the businesses finish the year as expected,discuss the result of Nate's request for a line of credit.

A short-term investment in a U.S.Treasury bill costs $48,800 and will mature six months later at $50,000.Management intends to hold the investment until it matures.The entry to record the initial investment is: