Exam 13: Investments and Fair Value Accounting

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

Herberto Company had a net income of $74,000,and other comprehensive loss of $8,500 for 2012.On January 1,2012,the Retained Earnings balance was $425,000 and the Accumulated Other Comprehensive Income balance was $52,000.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.

Any gains or losses on the sale of bonds normally would be reported in the Other Income (Loss)section of the income statement.

Purchased $400,000 of ABC Co.5% bonds at 100 plus accrued interest of $4,500.Sold $250,000 of bonds at 97 plus accrued interest.The journal entry for the sale would include:

Held-to-Maturity securities

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:

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

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:

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

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP)than it is under International Financial Reporting Standards (IRFS).

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1,2015.Marco reported net income of $95,000 and declared dividends of $35,000 during 2015.How much would Ramiro adjust their investment in Marco Company under the equity method?

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Compare and contrast why companies invest cash in short-term temporary investments vs.long-term investments.

Temporary investments

On June 1,$50,000 of treasury bonds were purchased between interest dates.The broker commission was $500.The bonds pay interest at 12%,which is paid semiannually on January 1 and July 1.What is the total cost to be debited to the Investment - Treasury Bonds account?

On April 1,2011,Albert Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000.On June 30,2011,Albert received its first semiannual interest.On February 1,2012,Albert sold $40,000 of the bonds at 103 plus accrued interest.The journal entry Albert will record on April 1,2011 for the purchase of the bonds will include:

Under the equity method,a stock purchase is not recorded at its original cost and is adjusted to fair market value each accounting period.

Which of the following would be considered an "Other Comprehensive Income" item?

Under the equity method,the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

Held to maturity securities