Exam 14: Investments in Debt and Equity Securities

Large,global enterprises typically have an equity interest in other entities throughout the world.Some of the interests represent wholly-owned (100%-owned)subsidiaries,while others represent lesser percentages of ownership.These large global conglomerates provide information on the percentage ownership of their various affiliated companies in the notes to the consolidated financial statements. The following list of companies represents the ownership percentage of selected companies by a large global company: Required: Explain how you would expect the global company holding the indicated interests to account for each of the companies listed above,based on the percentage ownership reported.

Which securities are purchased with the intent of selling them in the near future?

Tarkenton Corporation purchased the following portfolio of trading securities during 2014 and reported the following balances at December 31,2014.No sales occurred during 2014.All declines are considered to be temporary. The only transaction in 2015 was the sale of security Z for $35,000 on December 31,2015.The market values for the other securities at December 31,2015,were the same as at December 31,2014.Tarkenton's entry to record the sale of security Z would include a

In 2014,Quito Inc.purchased stock as follows: (a)Acquired 2,000 shares of Hollow Arts Corp.common stock (par value $20)in exchange for 1,200 shares of Quito Inc.preferred stock (par value $30).The preferred stock had a market value of $75 per share on the date of the exchange. (b)Purchased 800 shares of Marion Corp.common stock (par value $10)at $70 per share,plus a brokerage fee of $800. At December 31,2014,the market values of the securities were as follows: The investments in common stock are classified by Quito Inc.as available-for-sale securities accounted for by the cost method.The fiscal year of Quito ends on December 31. (1)Prepare all entries relating to the investments in common stock for 2014. (2)Prepare the entry to record the sale of 200 shares of Marion Corp.common stock on January 15,2015,at $74 per share. (3)Prepare the entry to reclassify the remaining 600 shares of Marion Corp.common stock from available-for-sale securities to trading securities on January 31,2015.The stock was selling at $67 per share on that date.

Other-than-temporary impairments in the value of equity securities classified as available-for-sale should be made

FASB Statement No.115 generally applies when the level of ownership of another company is at what percentage?

A debit balance in the account Market Adjustment--Available-for-Sale Securities at the end of a year should be interpreted as the net

The following selected information is available from the financial statements of a large global company: Required: Use the financial information above to answer the following questions: 1.Based on the information given above,what journal entries did this company make to record its share of the net income of its equity-basis companies and the receipt of dividends from these companies? 2.What was the dollar amount of the company's interest in equity-based companies that were sold during 2014? 3.Estimate the average percent ownership of the company in its equity-basis companies based on the company's share of the net incomes of these equity-based companies for the years 2013 and 2014. 4.From your results in question 3 above,is the direction of change in ownership consistent with the increasing or decreasing investment in equity-based companies?

On January 1,2014,Stillman Inc.purchased 30 percent of the outstanding common stock of Overrun Corporation for $516,000 cash.Stillman is accounting for this investment using the equity method.On the date of acquisition,the fair value of Overrun' net assets was $1,240,000.Stillman has determined that the excess of the cost of the investment over its share of Overrun' net assets is attributable to goodwill.Overrun' net income for the year ended December 31,2014,was $360,000.During 2014,Overrun declared and paid cash dividends of $40,000.There were no other transactions between the two companies.Ignoring income taxes,Stillman' statement of income for the year ended December 31,2014,should include "Income From Investment in Overrun Corporation Stock" in the amount of

In January 2014,Albert Corporation acquired 20 percent of the outstanding common stock of Peter Company for $1,120,000.This investment gave Albert the ability to exercise significant influence over Peter.The book value of the acquired shares was $840,000.The excess of cost over book value was attributed to an identifiable intangible asset that was undervalued on Peter's balance sheet and that had a remaining useful life of ten years.For the year ended December 31,2014,Peter reported net income of $252,000 and paid cash dividends of $56,000 on its common stock.What is the proper carrying value of Albert's investment in Peter at December 31,2014?

When an investor purchases sufficient common stock to gain significant influence over the investee,what is the proper accounting treatment of any excess of cost over book value acquired?

On January 1,2014,Amber Inc.purchased 30 percent of the outstanding common stock of Collar Corporation for $516,000 cash.Amber is accounting for this investment using the equity method.On the date of acquisition,the fair value of Collar' net assets was $1,240,000.Amber has determined that the excess of the cost of the investment over its share of Collar' net assets is attributable to goodwill.Collar' net income for the year ended December 31,2014,was $360,000.During 2014,Collar declared and paid cash dividends of $40,000.There were no other transactions between the two companies.On December 31,2014,the investment in Collar should be recorded as

When an investor uses the equity method to account for investments in common stock,the investment account will be increased when the investor recognizes

At January 1,2014,a company had a net valuation allowance account credit balance for investments in securities available-for-sale of $20,000.At December 31,2014,the total cost of the relevant portfolio was $300,000,and total market value was $275,000.The entry required on December 31,2014,would reflect a

The equity method of accounting for an investment in the common stock of another company should be used when the investment

The following information is available for an enterprise's security investments as of December 31,2014: What is the 2014 holding gain or loss recognized in 2014 earnings and directly to stockholders' equity?

The following transactions of the Macheski Company were completed during the fiscal year just ended: Prepare the entries necessary to record the above transactions.

Cronie Enterprises purchased 10,000 shares of stock in Vector Corporation for $15 per share.Cronie's broker arranged for Cronie to pay only $4 cash per share at the date of purchase with the remaining balance to be paid in monthly installments. Cronie should record the investment by:

At the beginning of the year a company had a debit balance in the account Market Adjustment--Trading Securities.During the year the company did not buy or sell any trading securities,but at the end of the year the related market adjustment account had a credit balance.This change indicates that

The following information relates to Bower Company's short-term investment in equity securities available for sale at the end of 2013 and 2014 (in 000s): Bower's net realized and unrealized gains and losses for 2014,respectively,would be