Exam 14: Investments in Debt and Equity Securities

Rider Company had the following portfolio of securities at the end of its first year of operations: (1)Provide the entry necessary to adjust the portfolio of securities to market value. (2)After adjusting the securities to market,Rider elects to reclassify Security B as an available-for-sale security.On the date of the transfer,Security B's market value is $26,000.Provide the journal entry to reclassify Security B.

When an investor uses the equity method to account for investments in common stock,cash dividends received by the investor from the investee should be recorded as

On July 1,2014,The Plumbing Group purchased for cash 35 percent of the outstanding capital stock of Classet Studios.Both The Plumbing Group and Classet Studios have a December 31 year-end.Classet Studios,whose common stock is actively traded in the over-the-counter market,reported its total net income for the year to The Plumbing Group and also paid cash dividends on November 15,2014,to The Plumbing Group and its other stockholders. How should The Plumbing Group report the above facts in its December 31,2014,balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.

From the following,select the most appropriate basis for the valuation of a new investment when properties or services are exchanged for stock.

On July 1,2014,Hilltop Systems acquired 8,000 shares of Accurate Services' 40,000 outstanding common shares at a cost of $240,000.The book value of Accurate's net assets on that date was $880,000.The following data pertain to Accurate Services for 2014: Any excess of cost over book value is attributable to depreciable properties the market value of which exceeds the carrying value.The remaining life of the equipment is 10 years. (1)Prepare the entry to record the original investment on July 1. (2)Prepare the necessary entries (other than acquisition)for 2014 on Hilltop Systems' books using the cost method. (3)Prepare the necessary entries (other than acquisition)for 2014 on Hilltop Systems' books using the equity method.

On January 1,2014,Farming Associates purchased 25 percent of the outstanding shares of stock of Anders Corp.for $125,000 cash.The investment will be accounted for by the equity method.On that date,Anders's net assets (book and fair value)were $250,000.Farming has determined that the excess of the cost of its investment in Anders over its share of Anders's net assets is attributable to equipment whose market value exceeds its carrying value by $95,000 and to an operating license whose market value exceeds its carrying value by $95,000.The remaining useful life of the equipment is ten years and the remaining useful life of the operating license is 20 years. Anders's net income for the year ended December 31,2014,was $55,000.During 2014,Farming received $4,500 cash dividends from Anders.There were no other transactions between the two companies. Compute the amount that would be reported on Farming Associates' books for the investment in Anders Corp.at December 31,2014.

Neutron Corporation held the following short-term investments in equity securities classified as trading securities: The valuation account is a net credit of $8,000 at the end of 2014.What was the original cost per share of the C common stock?

On January 1,2014,Bijou Company purchased investment securities costing $3,000 and classified them as available-for-sale.During 2014,Bijou Company sold a portion of these available-for-sale securities with a cost of $1,800 for $1,500.The market value of the remainder of these securities available-for-sale at December 31,2014,was $1,300.Bijou prepares its statement of cash flows using the indirect method. Which of the following represents the effect of these transactions on the statement of cash flows for Bijou Company for the year ending December 31,2014?