Exam 13: Investments and Long-Term Receivables

Investments in debt and equity securities that are held for current resale by banks and stockbrokerage firms are termed

Exhibit 13-2 On January 1, 2014, the Cluzt Company purchased 30% of the 1,000,000 shares of Nancy's common stock for $15,000,000 when 30% of Nancy's net assets totaled $12,000,000. The excess purchase price over the underlying assets was attributable to undervalued depreciable plant assets with a remaining useful life of ten years. Nancy reported net income of $8,000,000 and paid cash dividends of $2,000,000 during 2014. -Refer to Exhibit 13-2. The income reported by Clutz during 2014 from its investment in the Nancy Company should be

On January 1, 2014, Garcia Company acquired bonds with a face value of $80,000 for $76,066. The bonds carry a stated interest rate of 8% and an effective yield of 10%. Interest is payable on June 30 and December 31, the bonds mature on December 31, 2016, and they are classified as held-to-maturity. Required: Prepare the journal entries necessary by Garcia to record the purchase of bonds and the first two interest receipts using the effective interest method of amortization. Round to the nearest dollar.

When the investor owns more than 50% of the voting common stock of the investee, the investee is considered to be under the legal control of the investor.

Under the equity method, a receipt of cash dividends by the investor would

On January 1, 2015, Brewster's, Inc. bought $50,000 of 10% ten-year bonds of Chocolate Co. for $56,795 to yield 8% annually. The bonds pay interest semiannually and are classified as held-to-maturity. Interest is paid on June 30 and December 31. Required: Using the effective interest method, journalize the receipt of the interest and amortization at December 31, 2015.

Current GAAP requires a company to recognize in its current net income any gain or loss from a change in the fair value of the derivative for a

When bonds are purchased between interest dates, the accrued interest should be

On January 1, 2014, A Corp. had the following investments: During the year, A Corp. acquired for trading M Co. stock for $1,000. At year-end, the stock has a fair market value of $1,200. The K Inc. investment was transferred from AFS to trading on December 31 when the fair market value was $2,500. The S Co. investment had a December 31 market value of $3,500. The G Inc. bonds had a fair market value on December 31 of $9,850. Required: Indicate the balance sheet classification, valuation amount(s) and where unrealized holding gains/losses would appear on the December 31, 2014 financial statements for each investment.

Which of the following regarding trading securities is correct?

In order for a derivative to be considered a hedge it must be mostly effective in offsetting a substantial amount of risk exposure associated with changes in fair values or cash flows of the hedged item.

Chapin Company purchased investments in 2017 at a cost of $200,000 they recorded as trading securities. Their market values totaled $250,000 and $230,000 on December 31, 2017, and December 31, 2018, respectively. The entry required on December 31, 2018, would include a

The entry to record a sale of trading securities for $65,000 on January 3, 2018, that were purchased for $52,000 on November 21, 2017, and had a fair value on December 31, 2017, of $57,000 would include a

Discuss the three categories of investments described in the FASB's current standard for investments in marketable securities.

Unrealized gains and losses on investments in trading securities are reported

ABC Company has been purchasing stock of XYZ Company for a few years. ABC has classified the XYZ Company stock as available-for-sale. ABC has just purchased an additional 10% of XYZ's stock so it now owns 25% and is the largest stockholder. How does this last purchase affect ABC's accounting for this stock?

Which of the following is not a derivative?

A marketable security is initially classified as a trading security, an available-for-sale security, or a held-to-maturity debt security. Subsequently, a security can be transferred among categories. Required: Explain the accounting for a related unrealized holding gain or loss when a transfer to another category occurs.

How is the premium or discount on held-to-maturity bond investments presented on the balance sheet?

Which type of investment in securities must always be classified as a current asset?