Exam 13: Investments

An investor who may significantly influence the business activities of the investee should report the investment using the:

The fair value method of accounting for long-term investments in stock should be used when the:

On January 1,2019,Exclusive Company purchases $10,000 of 6% bonds in Smiley Company at a price of 95.Exclusive Company intends to hold the bonds until the maturity date on January 1,2029,and has the ability to do so.The interest dates are January 1 and July 1.Exclusive Company amortizes any discount or premium using the straight-line method.The fiscal year end of Exclusive Company is December 31. Required: Prepare the journal entries on: 1.January 1,2019 2.July 1,2019 3.December 31,2019 4.January 1,2020 Explanations are not required.

If 15% of the common stock of an investee company is purchased as a long-term investment,the appropriate method of accounting for the investment is:

Unrealized gains and losses on equity securities when the investor has insignificant influence are reported on the income statement.

The face interest rate of a bond determines the cash amount of interest the debtor company is expected to pay annually or semiannually.

On January 1,2019,Dooley Company purchases $92,000,6% bonds at a price of 90.8 and a maturity date of January 1,2029.Dooley Company intends to hold the bonds until their maturity date and has the ability to do so.Interest is paid semiannually,on January 1 and July 1.Dooley Company has a calendar year end.The entry for the receipt of interest on July 1,2019 is:

On January 1,2019,Carmody Corporation purchased 6% bonds with a face value of $66,000 for $68,000.Carmody Corporation intends to hold the bonds until the maturity date and has the ability to do so.Interest is paid semiannually on January 1 and July 1.The company uses the straight-line amortization method for discounts and premiums.The journal entry on January 1,2019 is:

On January 1,2019,Benson Company purchases $120,000,8% bonds at a price of 90 and a maturity date of January 1,2024.Benson Company plans to hold the bonds until their maturity date and has the ability to do so.Interest is paid semiannually,on January 1 and July 1.Benson Company has a calendar year and uses the straight-line amortization method for discounts and premiums.The adjusting entry to amortize the discount and record interest revenue on December 31,2019 is:

On January 1,2019,Dodge Company purchases $106,000,4% bonds at a price of 90.5 and a maturity date of January 1,2029.Dodge Company intends to hold the bonds until their maturity date and has the ability to do so.Interest is paid semiannually,on January 1 and July 1.Dodge Company has a calendar year end.The entry to record the purchase of the bond investment on January 1,2019,is:

Investments accounted for by the equity method are recorded initially at cost.

To be classified as a current asset,an investment must meet which of the following criteria:

Long-term investments include:

When a company receives interest revenue from a held-to maturity bond,the journal entry includes:

On January 1,of the current year,Rod Corporation purchased 40% of the outstanding stock of Alamo Corporation for $480,000.Net income reported by Alamo for the year was $210,000.Dividends declared and paid by Alamo during the year were $40,000.The amount of investment revenue that Rod should recognize for the current year is:

When a company receives a cash dividend from equity securities with insignificant influence,the journal entry is:

An unrealized gain on an equity security when the investor has insignificant influence:

For accounting purposes,the method used to account for long-term investments in common stock is determined by:

Investments in debt securities may be divided into held-to-maturity securities,trading securities,and available-for-sale securities.

On January 1,2018,Innocente Company purchased 1,000 shares of Entel common stock at $40 per share.Innocente owns 3% of the outstanding shares with insignificant influence.On June 1,2018,Entel declares and distributes a cash dividend of $0.50 per share.On December 31,2018,the market price of Entel's stock is $44 per share.On February 1,2019,the Entel's stock is sold for $48 per share. Prepare the journal entries on: 1.January 1,2018 2.June 1,2018 3.December 31,2018 4.February 1,2019 Explanations are not required.