Exam 12: Investments

Dyckman Dealers has an investment in Thomas Corporation that Dyckman accounts for as a trading security.Thomas Corporation shares are publicly traded on the New York Stock Exchange,and the prevailing price on that exchange indicates that Dyckman's investment is worth $20,000.However,Dyckman management believes that the stock market is generally overvalued,and their analysis of the Thomas investment suggests to them that it is worth $18,000.Dyckman should carry the Thomas investment on its balance sheet at:

Hobson Company bought the securities listed below during 2015.These securities were classified as trading securities.In its December 31,2015,income statement Hobson reported a net unrealized loss of $13,000 on these securities.Pertinent data at the end of June,2016 is as follows: What amount of loss on these securities should Hobson include in its income statement for the six months ended June 30,2016?

When an investor classifies an investment in common stock as securities available for sale,cash dividends are classified by the investor as:

Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee.

What balance sheet amount would Beresford report for its total investment securities at 12/31/2015?

Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale.

If an available-for-sale investment is sold for which there are unrealized gains in accumulated other comprehensive income (AOCI),a reclassification adjustment affects other comprehensive income (OCI)in the period of sale by:

Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security.

The investment category for which the investor's "positive intent and ability to hold" is important is:

Both debt and equity securities can be categorized as trading securities.

Sometimes companies change the extent to which they can significantly influence an investee,such that they have to change to the equity method or from the equity method of accounting for the investment. Required: Describe the adjustments necessary when a company (1)changes to the equity method from another method,and (2)when a company changes from the equity method to another method.

Jeremiah Corporation purchased securities during 2016 and classified them as securities available for sale: All declines are considered to be temporary.How much gain will be reported by Jeremiah Corporation in the December 31,2016,income statement relative to the portfolio?

On January 1,2015,Bactin Corporation acquired 10% of Oakton Company for $100,000.On that date,the total book value and fair value of Oakton's net assets was $900,000.Any difference between cost and fair value is attributable to goodwill.In 2015,Oakton reported net income of $60,000 and paid dividends of $30,000.On January 1,2016,Bactin Corporation bought another 10% of Oakton for $100,000,and on that date,the book value and fair value of Oakton's net assets still was $900,000 (the fair value of Oakton did not change during 2015).Bactin concluded that its 20% ownership now allowed it to significantly influence Oakton's operations.In 2016,Oakton reported net income of $80,000 and paid dividends of $40,000. Required: Prepare all journal entries for Bactin for 2015 and 2016,assuming no change in fair value of the Oakton stock during that time period.

When available-for-sale securities are sold,the amount of gain or loss realized from the date of purchase is included in before-tax net income.

The following transactions occurred during the year for XYZ Corporation: (a. )During the year,trading securities were purchased for $250,000. (b. )During the year,securities available for sale were purchased for $80,000. (c. )During the year,trading securities that are carried on the balance sheet at their fair value of $125,000 were sold for $125,000 cash. (d. )At the end of the year,the trading securities portfolio has an aggregate market value of $142,000 and an aggregate cost of $150,000. (e. )At the end of the year the securities available for sale portfolio has an aggregate market value of $95,000. Required: Indicate how each of these transactions would affect the statement of cash flows for a corporation.Assume the statement of cash flows is prepared using the indirect method.Each transaction is assumed to be independent of the other transactions.

An OTT impairment for an equity investment is recognized in net income if fair value declines below the investment's cost and:

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.Assume the total book value and fair value of net assets is $650,000.Both companies have a January through December fiscal year.The following data pertains to Mountain Corporation during 2016: Required: (1. )Prepare the entry to record the original investment in Mountain. (2. )Compute the goodwill (if any)on the acquisition. (3. )Prepare the necessary entries (other than acquisition)for 2016 under the equity method.

In its 20X4 annual report to shareholders,Maytag Corporation included the following disclosures in its income statement and related footnotes: CONSOLIDATED STATEMENTS OF INCOME Special Charges and Loss on Securities During the fourth quarter of 20X4,the Company recorded special charges and loss on securities totaling $17.0 million,or $13.5 million after-tax.Special charges of $9.8 million,or $6.2 million after-tax,were associated with a salaried workforce reduction of approximately 250 employees.Cash expenditures for 20X4 related to this charge were $3.7 million.Loss on securities of $7.2 million resulted from the write-down of the remaining investment in a privately held Internet-related company. During the fourth quarter of 20X3,the Company recorded special charges and loss on securities totaling $57.5 million,or $36.5 million after-tax.Special charges of $39.9 million,or $25.3 million after-tax,were associated with terminated product initiatives,asset write-downs,and executive severance costs related to management changes.Loss on securities of $17.6 million,or $11.2 million after-tax,resulted from a lower market valuation of securities of TurboChef Technologies,Inc. ,and investments in privately held Internet-related Companies …..The loss on securities charge of $17.6 million was noncash. Required: Discuss the possible rationale behind the losses on securities reported by Maytag in 20X3 and 20X4.

Hope Company bought 30% of Faith Corporation in the beginning of 2016.Hope's purchase price equaled 30% of the book value of Faith's net identifiable assets,which also equaled 30% of the fair value of Faith.During 2016,Faith reported net income in the amount of $4,000,000 and declared and paid dividends in the amount of $500,000.Hope mistakenly accounted for the investment as available for sale instead of using the equity method.What effect would this error have on the investment account and net income,respectively,for 2016?

On January 1,2016,Hoosier Company purchased $930,000 of 10% bonds at face value.The bond market value was $980,000 on December 31,2016. Required: Prepare the appropriate journal entry on December 31,2016,to properly value the bonds assuming the bonds are classified as: (1. )Trading securities. (2. )Securities available for sale. (3. )Held-to-maturity securities.