Exam 12: Investments

Which category completely excludes equity securities?

Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2016.In December,Handy announced $200,000 net income for 2016 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock.Zwick Company's dividend revenue from Handy Corporation in December 2016 would be:

Bentz Corporation bought and sold several securities during 2016.Listed below is a summary of the transactions: Required: Prepare the journal entries for the above transactions.Show calculations.

If Ziggy Company concluded that an investment originally classified as held to maturity would now more appropriately be classified as available for sale,Ziggy would:

Prepare appropriate entry(s)at December 31,2018,and indicate how the scenario will affect net income,OCI,and comprehensive income.

On March 17,2015,Union Corporation purchased 5,000 shares of AZQ common stock as a long-term investment at $40 per share.On December 31,2015,and December 31,2016,the market value of the AZQ stock is $42 and $43,respectively. Required: (1. )What is the appropriate reporting category for this stock? Why? (2. )Prepare the adjusting entry on December 31,2015. (3. )Prepare the adjusting entry on December 31,2016.

Assuming a constant tax rate of 40%,what was the pre-tax accumulated unrealized gain or loss on available-for-sale securities at 7/1/2015?

Both trading securities and securities available for sale are reported at their fair values.

When investments are treated as available-for-sale,other comprehensive income (OCI)also includes the tax effects associated with unrealized holding gains and losses.As a result:

If the fair value of equity securities is not determinable and the equity method is not appropriate,the securities should be reported at:

Dicker Furriers purchased 1,000 shares of Loose Corporation stock on January 10,2015,for $800 per share and classified the investment as securities available for sale.Loose's market value was $400 per share on December 31,2015,and the decline in value was viewed as temporary.As of December 31,2016,Dicker still owned the Loose stock whose market value had declined to $100 per share.The decline is due to a reason that's judged to be other than temporary.Dicker's December 31,2016,balance sheet and the 2016 income statement would show the following:

Bourne,Inc. ,acquired 50% of David Webb Enterprises for $5,000,000 on January 1,2016.The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date.During 2016 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000.Webb had a fair value of $11,000,000 as of December 31,2016. Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill on Bourne's balance sheets,assuming Bourne accounts for the Webb investment under the equity method.

On July 1,2016,Clearwater Inc.purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000.Mountain had 30,000 shares of outstanding common stock.The total book value and total fair value of Mountain's individual net assets on July 1,2016,are both $700,000.The total fair value of the 30,000 shares of Mountain's common stock on December 31,2016,is $760,000.Both companies have a January through December fiscal year.The following data pertains to Mountain Corporation during 2016: Required: (1. )Prepare the necessary entries for 2016 under the equity method (other than for the purchase). (2. )Prepare any necessary entries for 2016 (other than for the purchase)that would be required if the securities are classified as available for sale.

Use the following to answer questions Arctic Cat Inc. ,the snowmobile manufacturer,reported the following in its 20X5 annual report to shareholders: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal bonds and money market funds and are classified as follows at March 31: Trading securities consist of $54,608,000 and $41,707,000 invested in various money market funds at March 31,20X5 and 20X4,respectively,while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments.The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000,at March 31,20X5.The unrealized gain on available-for-sale debt securities is reported,net of tax,as a separate component of shareholders' equity. Arctic Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: In its 20X4 annual report,Arctic Cat disclosed,"The contractual maturities of available-for-sale debt securities at March 31,20X4,are $3,573,000 within one year and $3,340,000 from one year through five years." -What gain or loss would be realized if the available for sale securities on Arctic Cat's 3/31/X5 balance sheet were sold immediately for their fair value? Show the journal entry that would record the sale,and show a journal entry to record the effects of the sale on their fair value adjustment at the end of the period (ignore taxes).

Previously,marketable equity securities were reported using a technique referred to as "lower of cost or market." The current accounting standard requires fair value reporting for trading securities and securities available for sale.Some accountants believe that the FASB was inconsistent when GAAP was issued requiring changes in the value of trading securities to be reported in the income statement and balance sheet,while changes in the value of securities available for sale are reported only in the balance sheet. Required: Evaluate the rationale for these two diverse reporting requirements for equity securities.What arguments could be made to support each treatment?

All investments in debt and equity securities that don't fit the definitions of the other reporting categories are classified as:

Cucumber Company concluded at the beginning of 2016 that the company's ownership interest in PickelCo had decreased to the point that it became appropriate to begin accounting for its investment as available for sale,rather than using the equity method as it had been doing.The balance in the investment account is $75,000 at the time of the change,and accountants working with company records determined that the balance would have been $50,000 if the investment had been accounted for as an available-for-sale investment.At the time of implementing the change to the available-for-sale method,if financial statements were prepared:

Under IFRS No.9,cost can be used as an estimate of fair value in some circumstances.

Krogstad Corporation bought 1,000 shares of Cole Inc.for $90 per share plus a brokerage fee of $1,800.Three months later,the shares were sold for $110 per share.The brokerage fee on the sale was $2,200. Required: (1. )Prepare the appropriate journal entry to record the purchase of the stock. (2. )Prepare the appropriate journal entry to record the sale of the stock.

If Pop Company exercises significant influence over Son Company and owns 40% of its common stock,then Pop Company: