Question 1

Prepare the journal entries for the following transactions for Batson Co.

Accepted Answer

(a)
   (b)
No entry
(c)

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

Available-for-sale securities are securities that management expects to sell in the future, but are not actively traded for profit.

Accepted Answer

A) True 
 B)False

Question 5

Held-to-maturity securities are reported on the balance sheet at fair market value.

Accepted Answer

A) True 
 B)False

Question 6

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Accepted Answer

A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased 
A)  investment only 
B)  investment plus Wendell's share of Porter's net income earned since the investment was purchased 
C)  investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased 
D)  investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased

Question 7

Comprehensive income must be reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 8

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 to record the purchase would include:

Accepted Answer

A)  a debit to Investments for $132,000 
B)  a credit to Cash for $132,000 
C)  a debit to Investments for $132,240 
D)  a credit to Investments for $240 
A)  a debit to Investments for $132,000 
B)  a credit to Cash for $132,000 
C)  a debit to Investments for $132,240 
D)  a credit to Investments for $240

Question 9

Investments in stocks that are expected to be held for the long term are listed in the stockholders' equity section of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 10

Held to maturity securities

Accepted Answer

A)  are reported at fair market value 
B)  include stocks as well as bonds 
C)  may be reported as current or noncurrent assets 
D)  all of the above 
A)  are reported at fair market value 
B)  include stocks as well as bonds 
C)  may be reported as current or noncurrent assets 
D)  all of the above

Question 11

When the cost method is used to account for an investment, the carrying value of the investment is affected by

Accepted Answer

A)  the dividend distributions of the investee. 
B)  the periodic net income of the investee. 
C)  the earnings and dividend distributions of the investee. 
D)  neither the earnings nor the dividends of the investee. 
A)  the dividend distributions of the investee. 
B)  the periodic net income of the investee. 
C)  the earnings and dividend distributions of the investee. 
D)  neither the earnings nor the dividends of the investee.

Question 12

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Accepted Answer

A)  $400 
B)  $406 
C)  $2,000 
D)  $2,400 
A)  $400 
B)  $406 
C)  $2,000 
D)  $2,400

Question 13

Temporary investments

Accepted Answer

A)  are reported as current assets 
B)  include cash equivalents 
C)  do not include equity securities 
D)  all of the above 
A)  are reported as current assets 
B)  include cash equivalents 
C)  do not include equity securities 
D)  all of the above

Question 14

Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for 2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

Accepted Answer

The answer of Gerardo Company had a net income of...

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:

Accepted Answer

A)  2.5% 
B)  400% 
C)  16% 
D)  40% 
A)  2.5% 
B)  400% 
C)  16% 
D)  40%

Question 16

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Accepted Answer

A) True 
 B)False

Question 17

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Accepted Answer

A)  Credit to cash for $9,000 
B)  Debit to the investment account for $9,000 
C)  Credit to the investment account for $9,000 
D)  Credit to a loss account for $9,000 
A)  Credit to cash for $9,000 
B)  Debit to the investment account for $9,000 
C)  Credit to the investment account for $9,000 
D)  Credit to a loss account for $9,000

Question 18

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is:

Accepted Answer

A)  5% 
B)  10% 
C)  25% 
D)  20% 
A)  5% 
B)  10% 
C)  25% 
D)  20%

Question 19

Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.

Accepted Answer

Both trading securities and available-fo

Question 20

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

Accepted Answer

A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary 
A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary

Exam 13: Investments and Fair Value Accounting

Prepare the journal entries for the following transactions for Batson Co.

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

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

Available-for-sale securities are securities that management expects to sell in the future, but are not actively traded for profit.

Held-to-maturity securities are reported on the balance sheet at fair market value.

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Comprehensive income must be reported on the income statement.

Investments in stocks that are expected to be held for the long term are listed in the stockholders' equity section of the balance sheet.

Held to maturity securities

When the cost method is used to account for an investment, the carrying value of the investment is affected by

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Temporary investments

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:

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is:

Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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