Exam 13: Investments and Fair Value Accounting

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

Nicer Corporation reported net income of $50,000 in the current year. There are 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 par common stock outstanding. During the year, Nicer paid the preferred stockholders a $6 per share dividend and also paid $30,000 to common shareholders. The market value of Nicer’s stock is preferred stock, $95, and common stock, $5.00. a. Calculate Nicer’s dividend yield. b. Why does the dividend yield vary widely across firms?

Prepare the journal entries for the following transactions for Batson Co. a. Batson Co.purchased 1,200 shares of the total of 100,000 outstanding shares of Michael Corp.stock for $20.75 per share plus a $70 commission. b. Michael's total earnings for the period are $84,000. c. Michael's paid a total of $40,000 in cash dividends to shareholders of record.

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Define debt securities and equity securities.Include their similarities and differences in your discussion.

All of the following are disadvantages of fair value use except

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year,9% bonds.Present entries to record the following selected transactions: a. Purchased bonds at 93 for $465,000. b. Sold half the bonds at 98 plus accrued interest of $4,000.The broker deducted $200 for brokerage fees and taxes,remitting the balance.The bonds were carried at $479,000 at the time of the sale.