Exam 18: Investing Assets

As of 12/31/17,XYZ Inc.had Available-for-Sale debt investments with a fair value of $522,000,an amortized cost of $535,000,and a credit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,500.What is the amount of gain or loss reported by XYZ related to these available-for-sale debt investments and how should it be reported?

On July 1,Year 1,Fairfield Company purchased $2 million of Hampton Corporation's 6% bonds for $1,731,590.The bonds were purchased to yield 8% interest and were classified as held-to-maturity securities.The bonds mature in 10 years and pay interest annually on July 1.Assuming that Fairfield uses the effective interest method of amortization,what amount should it report for its investment in bonds on December 31,Year 1?

Equity securities are an investment in the common or preferred shares of another company.

Dowell Corporation decided that an investment originally classified as available for sale should be reclassified as held to maturity.Dowell would ________.

What affect do unrealized holding gains and losses on available for sale securities have on retained earnings?

HdG,Inc.accepts a $100,000,5% note from Aberdeen Unlimited on 4/1/16,and lends money to Aberdeen.Aberdeen agrees to pay 5 equal annual payments on this note beginning 3/31/17.The market rate at the date of issuance of this note was 5%.What is the annual payment that HdG will receive for this note?

Companies determine the cost of held-to-maturity securities as the present value of the future cash flows,discounted at the stated rate of interest.

The face value and present value of a long-term note receivable are always different and require present value techniques to calculate this difference.

Meyer Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates.Meyer has significant influence over Angel,so Meyer will account for this investment using the equity method.On the purchase date,Angel had net assets with a book value of $7,300,000 and a fair value of $8,000,000.The difference in fair value is a result of the higher fair value of equipment than it's book value.The remaining useful life of this equipment is 25 years.Assuming this investment was purchased on 1/1,which of the following is the correct journal entry to record the difference in net assets for this investment on 12/31?

Investor companies may elect to value their held-to-maturity investments at fair value instead of unamortized cost.

ABC accepts a $400,000,9% note from DEF on July 1,2016,and lends cash to DEF.This note matures on June 30,2018,and requires annual installment payments each June 30 until maturity.The market rate of interest on the date of issue was 9%.Complete the amortization table for this note receivable,then complete all necessary journal entries for 2016,2017,and 2018.ABC is a calendar-year company that files financial statements annually.

What are the three levels of influence that an investor can have over an investee company? What is the appropriate accounting treatment for each level of influence?

If the stated interest rate of a note is higher than the prevailing market rate,a resulting discount on notes receivable will be recorded.

Garnett Wholesalers purchased equity securities during 2016 and 2017 that it classified as available-for-sale securities.It had not purchased equity securities prior to 2016,and has purchased no other equity securities besides the following: Prepare all necessary journal entries for 2016 and 2017 related to these securities.

How are transfers between portfolios (i.e.from trading to available-for-sale)accounted for?

Which of the following statements regarding available for sale debt securities is true?

IFRS allowed companies to use the fair value option for all assets except investments being accounted for using the equity method.

On January 1,Year 1,Gibson Corporation purchased bonds issued by Williamson Company.These bonds were classified as held-to-maturity securities.The face value of these bonds is $200,000,pay 8% interest and were purchased to yield 6%.The bonds mature in 10 years and pay interest on an annual basis.If Gibson Corporation paid $229,439 for these bonds,how much interest revenue should it report on the bonds at December 31,Year 1? Assume that Gibson used the effective interest method.

Refer to Sheppard Company.What will be the balance in the investment account at the end of December 31,2016?

During 2015,Arnold Corporation purchased $6 million of 10 year municipal bonds at face value.On December 31,2017,the bonds had a market value of $6,600,000.Arnold reclassified the bonds from held-to-maturity to trading securities.Arnold's balance sheet and income statement for December 31,2017 will reflect which of the following?