Exam 13: Investments and Long-Term Receivables

On January 1, 2014, Macie Company purchased Jefferson Company's 9% bonds with a face amount of $200,000 for $213,420 to yield 8%. The bonds mature on January 1, 2024, and Macie has both the intent and ability to hold these bonds to maturity. The bonds pay interest annually on December 31. Assuming Macie uses the effective interest method of amortizing the bond premium; interest income reported on the December 31, 2014, balance sheet would be

Investments that are typically held for short periods of time and sold by the company in the expectation of a profit on the short-term differences in price are classified as

The Reba Company purchased 10%, $800,000 bonds of the Trading Up Company at par plus accrued interest on April 1, 2014, as an investment in trading securities. The bonds pay interest on June 30 and December 31 each year. The entry by Reba on April 1, 2014, would include a

A company is required to disclose for Held-to-Maturity debt securities the aggregate fair value and the change in the net unrealized holding gains or loss to be included in the income statement.

What are the four components necessary to account for investments in trading securities?

Which of the following categories of investments are reported at their fair values on the balance sheet and have unrealized holding gains and losses included as a separate component of stockholders' equity?

The carrying value of available-for-sale debt and equity securities is

Chang Company purchased several investments in December 2015. Costs and market values of those investments on December 31, 2015, are presented below: Assuming all of the securities are classified as available-for-sale, the journal entry required on December 31, 2015, the end of Chang's fiscal year, would include a

What are the five components necessary to account for investments in available-for-sale securities?

Unrealized Holding Gain/Loss-Ttrading Securities account is a temporary account that would be closed to Retained Earnings during the closing process.

The Wise Company acquired an 20% interest in the outstanding common stock of the Smith Company. The Wise Company can exercise significant influence over the operating and financial policies of the Smith Company. The Wise Company should account for its investment in the Smith Company by using the

When an investor currently using the fair value method acquires significant influence over the investee at mid-year, the investor should

Under current GAAP for marketable securities, trading securities and available-for-sale securities are reported at their fair value, but held-to-maturity securities are reported at their amortized cost. Required: Explain why there is a difference in the reporting requirements for these three classifications of marketable securities.

All of the following statements regarding available-for-sale debt securities are true except

Acquisition of greater than 20% of the outstanding stock of a company normally suggests the use of the

In 2017, Bucky Corporation, for the first time, invested some idle funds in a variety of securities classified as available-for-sale, as described below: The company's year ends on December 31 and the bonds pay interest semiannually on January 1 and July 1. Required: Answer each of the following questions about Bucky Corporation's investments: a.Calculate the balance that should be in Allowance for Change in Fair Value of Investments to properly value the securities in the portfolio at the end of the third quarter, and indicate whether the balance will be a debit or credit balance. b.What was the amount of the discount or premium involved in the company's purchase of the bonds? c.Ignoring amortization, how much did Bucky record as Interest Income on the bond investment during the third quarter of 2017?

A derivative may be

For available-for-sale securities, a decline in value due to a temporary decline in market value below cost is

Quadra Corp. insured its president on January 1, 2014, with a $2,000,000 life insurance policy. The annual premium was $60,000 payable on January 1 of each year. Cash surrender values increased each year by 5% of the premium paid. Dividends received in the first year (2014) amounted to $2,000 and increased by 10% each year, accruable at year-end only. Required: a.Compute insurance expense for 2015. b.Prepare journal entries for July 1, 2016, when the president died.

Wright Company has available-for-sale debt and equity securities that on December 31, 2014, had a cost of $110,000 and a market value of $108,000. The market value rose to $123,000 by December 31, 2015. What accounting action is required on December 31, 2015?