Exam 13: Investments and Long-Term Receivables

The transfer of a security between investment categories is accounted for at fair value at the time of the transfer or at cost depending upon the type of transfer.

On July 1, 2014, James Company purchased Timothy Company's six-year 9% bonds with a face value of $200,000 for $196,000, which included $6,000 of accrued interest. The bonds, which mature on March 1, 2020, are to be held-to-maturity and pay interest semiannually on March 1 and September 1. James uses the straight-line method of amortization. The amount of income James should report for the calendar year 2014 as a result of this investment would be

An investment of 20% or more in the outstanding common stock of the investee leads to the presumption of significant influence and the use of the consolidation method.

When an available-for-sale security is sold any unrealized gains or losses need to be reclassified from the Allowance for Change in Fair Value of Investments account in order to not double count any gains or losses recorded in comprehensive income.

First Bank decides to invest in trading securities. The bank purchased the following securities for the year 2015. 1)Prepare journal entries to record the preceding information. 2) What is the unrealized holding gain or loss and where is it reported on the 2014 financial statements? 3)Prepare the journal entry to record the unrealized holding gain or loss. 4)How would the bank report these securities on its balance sheet for the year ended 2015?

Pope has life insurance policies on its officers' lives. Annual premiums amount to $5,000. At the end of 2014, cash surrender value of the policies totaled $18,200. Dividends received by Pope from the insurance company amounted to $500 in 2014. The insurance expense recognized by Pope in 2014 was $3,500. What was the amount of cash surrender value of these policies on January 1, 2014?

What factors determine significant influence over the financial and operating policies of the investee company?

Define the following: *Held-to-Maturity Securities *Trading Securities *Available-for-Sale Securities

Which of the following regarding available-for-sale securities is correct?

The Master Company acquired a 40% interest in the Dickerson Company on January 2, 2014, for $1,000,000. During 2014, Dickerson Company paid $100,000 in dividends and reported net income of $270,000. At the end of 2014, the balance in Investment in Dickerson Company should be

Waldo Company owns 30% of Randy Company. During 2014, Randy reported earnings of $650,000 and paid cash dividends of $345,000. What effect would this have on Waldo's investment account and net income?

In addition to the fair value measurement of the investment what else must a company disclose?

Available-for-sale securities are recorded at cost which equals fair value on the acquisition date.

Stuart Corp. purchased 100 shares of Dumb Co. for $8 a share. It purchased 200 shares of Silly Inc. for $12 a share. As of December 31, Dumb Co. is selling for $9 a share and Silly Inc. is selling for $13 a share. Dumb Co. will be held at least 3 years and is classified as available-for-sale and Silly is classified as trading. Stuart had net income of $10,000 before reporting the impact of investment transactions. Required: a.Record the December 31 adjusting entries for investments. b.What is Stuart Corp.'s net income after adjusting for investments? c.What is the appropriate balance sheet classification for each investment?

A realized gain or loss on the sale of an available-for-sale security is determined by comparing

The cash surrender value of the insurance policy on the corporation's president would be presented on the balance sheet as

For a cash flow hedge a company would not recognize any change in the value of the financial instrument being hedged in its financial statements.

When a guarantee exists that a company is entitled to a return equal to the amount of the cash surrender value of the policy, a portion of the premium is recorded to a long term liability account.

Which of the following methods of accounting for investments is appropriate when the investor has significant influence over the investee?

On January 2, 2014, Mark Company acquired, as an investment, bonds with a face value of $500,000 for $562,300 to be held-to-maturity. The bonds carry a stated interest rate of 12% and an effective yield of 10%. Interest is paid on June 30 and December 31, and the bonds mature on December 31, 2023. Required: Prepare the journal entries necessary to record the purchase of the bonds and the first two interest receipts using the straight-line method of amortization.