Exam 18: Investing Assets

On 1/1/16,Lantana Loan Co.,a calendar-year company,accepts a 5%,$500,000 three-year loan that pays interest semi-annually on 6/30 and 12/31 from Diamond Distributors,when the market rate of interest was 10%.In exchange for the note,Diamond agrees to make semi-annual interest payment and repay the full $500,000 at maturity.How much cash will Diamond receive in exchange for this note?

ABC invested $19,000 in shares of DEF during Year 1,classifying the investment as available-for-sale.The fair value of this investment was $17,500 and $22,000 at the end of Year 1 and Year 2,respectively.Which of the following is the correct journal entry to adjust the trading securities to fair value at the end of Year 2?

Refer to Bosworth Corporation.What will be the proceeds of the note receivable?

If an investor company has significant influence over an investee company,the investment is valued at the fair value of the stock on the balance sheet date.

Brightney purchased common shares of Company A and B for $10,000 and $12,000,respectively on 12/15.Brightney intends to sell these securities within 30 days.At 12/31,Investments in Company A & B had a fair value of $9,000 and $15,000,respectively.Assuming an existing $1,500 debit balance in Fair Value Adjustment - Trading Equity Securities,what is the unrealized gain or loss for these securities and how is it reported?

JayBird Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates.JayBird has significant influence over Angel,so JayBird will account for this investment using the equity method.Angel declared dividends of $275,000 during the year.How will JayBird record this transaction?

Which of the following statements is incorrect?

Skywalker Limited purchased shares of Jedi Jewelers during 2015 for $124,000.Skywalker elected the fair value option for accounting for this investment.At year end 2015,2016,and 2017,this investment had a fair value of $120,000,$130,000,and $135,000,respectively.Record the journal entries for the purchase of this investment and the adjustment to fair value for each of the three year listed.

Fair values and subsequent growth of an investment are not relevant for reporting for which category of investments?

On January 1,Year 1 Alcorn Corporation purchased $95,000 of 9% bonds at face value.The bonds are classified as a held-to-maturity investment.The bonds pay interest semiannually on January 1 and July 1.On December 31,Year 1,the fair value of the bonds is $98,000 Required: 1.Prepare the journal entries to record the acquisition of the bonds and the first two interest payments.Include any year-end adjusting entries. 2.If the bonds were classified as an available for sale security,what additional adjusting entry would be made on December 31?

Thomas Corporation bought 25,000 shares of Powers Company stock for $250,000 on April 17.The market value of the stock declined to $195,000 by December 31.Thomas reclassified the investment as trading securities in December of the following year when the market value had risen to $215,000.What amount should be reported on the Year 2 income statement for the Powers shares?

Cassa & Associates purchased the bonds of JayBird.These bonds pay 5% interest semi-annually.The effective rate of interest at the date of investment was 4%.Did Jules purchase these bonds at a discount or premium?

Keller Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates.Keller has significant influence over Angel,so Keller will account for this investment using the equity method.Angel declared Net Income of $1,250,000 for the year.How will Angel's Net Income impact Keller's books?

Cowgirl Capital reported that following items related to equity investments for the year: Based on these investments,what amounts will be reported in Net Income? What amount will be reported in Other Comprehensive Income?

Trader Trust accepts a $500,000 non-interest bearing 10-year note from Coffee Co.in exchange for Cash on 1/1/16.Coffee Co.promises to repay $500,000 at maturity.The market rate on 1/1/16 was 4%.How much cash will Trader loan Coffee in exchange for this note?

Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc.Ewok purchased the shares for $210,000 and the shares are currently trading for $195,000 at year-end.What is the amount of gain or loss reported at year-end for this investment and where is this loss reported?

Testing for impairments of investment securities is a three step process: Measure the impairment loss,Determine where to present it,and assess whether there is a reversal needed in later periods.

Under the equity method of accounting for investments,dividends received from the investee are credited to Dividend Revenue for the investor.

For securities classified as held to maturity,companies must disclose the aggregate fair value of those securities the notes to its financial statements.

For companies with equity investments,IFRS requires disclosure of summarized financial information of the investee,including the amounts of total assets,total liabilities,revenues,and net income (loss).