Exam 13: Investments and Fair Value Accounting

An investor purchased 500 shares of common stock,$25 par,for $21,750.Subsequently,100 shares were sold for $49.50 per share.What is the amount of gain or loss on the sale?

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Question 1

Correct Answer:

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B

On May 1, Pierce Company purchased $60,000 of Stanton Company’s 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest. -What are the total proceeds from the February 1 sale?

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Question 2

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D

On January 1,the Valuation Allowance for Available-for-Sale Investments account had a zero balance.On December 31,the cost of the available-for-sale securities was $48,700,and the fair value was $39,200.Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31.

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Question 3

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$\begin{array}{lll} \text { Dec . 31 } & \text { Unrealized Gain Loss on Avallable-for- } & \\ & \text { Sale Investments } & 9,500^{*}\\& \text { Valuation Allowance for } & \\& \text { Available-for-Sale Investments } & &9,500\\& \text { *Available-for-sale investments at fair } & \\& \text { value, 12 / 31 } & \underline {\$39,200}\\& \text { Available-for-sale investments at } & \\& \text { cost, 12 / 31 } & \underline {48,700 } \\& \text { Unrealized gain loss on available-for } & \\& \text { sale investments, 12 / 31 } & \underline {\$ 9,500} \\\end{array}$

On February 12,Addison,Inc.purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee.On August 22,Lucas paid a $0.42 dividend per share.On November 10,4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.The journal entry for the sale would include a

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Question 4

Growth firms generally pay regular dividends to stockholders.

(True/False)

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Question 5

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

(True/False)

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Question 6

Comprehensive income must be reported on the income statement.

(True/False)

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Question 7

Investment in Bonds is reported on the balance sheet at lower of cost or market.

(True/False)

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Question 8

On May 1,Cedar Inc.purchases $100,000 of 10-year,Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest.What entry would Cedar record when receiving its semiannual interest on September 1?

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Question 9

Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year.On January 1,the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000.Determine the a comprehensive income for the year,b retained earnings balance on December 31,and c the accumulated other comprehensive income on December 31.

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Question 10

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

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Question 11

GAAP requires trading and availableforsale investments to be recorded

(Multiple Choice)

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Question 12

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

(True/False)

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Question 13

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

(True/False)

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Question 14

On August 1,Year 1,Ant Company sold Bee Company $1,500,000 of 10-year,6% bonds,dated July 1 at 100 plus accrued interest.On March 1,Year 2,Bee sold half of the bonds for $782,500 plus accrued interest.Present entries to record the following transactions: Bee Company: a. Purchase of bonds on August 1,Year 1. b. Receipt of first semiannual interest amount on December 31,Year 1. c. The sale of the bonds on March 1,Year 2.

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Question 15

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share.The market value of the stock is $16 per share.The company's dividend yield is

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Question 16

Trading securities should be reported on the financial statements at fair market value.

(True/False)

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Question 17

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

(True/False)

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Question 18

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock.The stock is purchased for $45 a share plus brokerage fees of $280.The entry for the purchase is

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Question 19

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

(True/False)

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Question 20

An investor purchased 500 shares of common stock,$25 par,for $21,750.Subsequently,100 shares were sold for $49.50 per share.What is the amount of gain or loss on the sale?

Growth firms generally pay regular dividends to stockholders.

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

Comprehensive income must be reported on the income statement.

Investment in Bonds is reported on the balance sheet at lower of cost or market.

On May 1,Cedar Inc.purchases $100,000 of 10-year,Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest.What entry would Cedar record when receiving its semiannual interest on September 1?

GAAP requires trading and availableforsale investments to be recorded

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share.The market value of the stock is $16 per share.The company's dividend yield is

Trading securities should be reported on the financial statements at fair market value.

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock.The stock is purchased for $45 a share plus brokerage fees of $280.The entry for the purchase is

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley,internal Control,and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization,stock Transactions,and Dividends

Long-Term Liabilities: Bonds and Notes

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 13: Investments and Fair Value Accounting

An investor purchased 500 shares of common stock,$25 par,for $21,750.Subsequently,100 shares were sold for $49.50 per share.What is the amount of gain or loss on the sale?

Growth firms generally pay regular dividends to stockholders.

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

Comprehensive income must be reported on the income statement.

Investment in Bonds is reported on the balance sheet at lower of cost or market.

On May 1,Cedar Inc.purchases $100,000 of 10-year,Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest.What entry would Cedar record when receiving its semiannual interest on September 1?

GAAP requires trading and available­for­sale investments to be recorded

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share.The market value of the stock is $16 per share.The company's dividend yield is

Trading securities should be reported on the financial statements at fair market value.

When a bond is purchased for an investment,the purchase price,minus the brokerage commission,plus any accrued interest is recorded.

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock.The stock is purchased for $45 a share plus brokerage fees of $280.The entry for the purchase is

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley,internal Control,and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization,stock Transactions,and Dividends

Long-Term Liabilities: Bonds and Notes

Statement of Cash Flows

Financial Statement Analysis

Filters

GAAP requires trading and availableforsale investments to be recorded