Exam 13: Investments and Long-Term Receivables

On January 1, 2014, the Z Corporation acquired a 20% interest in D Company by purchasing 4,800 shares of its 24,000 outstanding shares of common stock. The acquisition price was $30 per share. On the date of purchase, D Company's net assets were as follows: During 2014, D Company earned income of $70,000 and paid dividends of $18,000. The depreciable assets have a ten-year remaining life and no residual value. Required: Prepare all of the journal entries on Z Corporation's books to record the acquisition and subsequent events in 2014 related to the investment in D Company.

A note receivable is considered impaired when

David, Inc. used the equity method of accounting for its investment in Russell Company. At December 31, 2014, the investment balance was $4,500 after all adjustments were recorded. The following is additional information: What was the January 1, 2014 balance in Investment in Russell Company?

When transferring investments between categories, unrealized holding gains for securities transferred from trading to available-for-sale

What is a derivative financial instrument, provide two examples and list one concept involving derivative?

The carrying value of held-to-maturity debt securities is the

Required: 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?

Warren, Inc. purchased a $400,000 life insurance policy on the company president on January 1, 2017. The premium that was paid on January 1 amounted to $11,600. In the first year, cash surrender value increased by $900 and dividends received by Warren from the insurance company for the year amounted to $300. What was Warren's insurance expense for 2017?

For a minority active investment, a company should disclose the investor's accounting policies with respect to equity method of investments.

Dividends that are declared at year-end but not received on investments in securities held for sale or trading should be recognized when

Significant influence of another company generally occurs when the investor owns between 25% to 45%, due to this relationship the investor is required to issue consolidated financial statements.

With consolidation, control generally occurs when the investor owns what percentage of the voting stock of the investee?

Which of the following methods of accounting for investments is appropriate when the investor controls the investee?

Which of the following securities are reported at their amortized cost on the balance sheet date?

A transfer from the trading category into any other category does not require any accounting because unrealized holding gains or losses have already been recognized.

On October 1, 2014, the Sun Company acquired 9% bonds of Jack's Company with a face value of $400,000 for $412,000 plus accrued interest. Interest is payable on June 30 and December 31. How would Sun record the initial bond investment to be held-to-maturity?

What three steps are necessary to evaluate whether or not an investment is impaired?

Vermont Cheese Company has a $5,000,000, 7% bank loan from National Bank. On January 1, 2014, the bank loan has three years to maturity. Vermont enters into a three-year interest rate swap with Cheese Investments with a $5 million notional. The agreement calls for Vermont to receive a fixed interest rate of 7% and pay a variable rate based on LIBOR at the beginning of the year. Payments are to be made for the net amount at each year-end. At the beginning of 2014, the LIBOR rate is 6.75%. The three-year fixed rate at the end of 2014 is 9%. Required: Prepare the journal entries for Vermont Cheese Company for the bank loan and derivative for 2014. (Round answers to the nearest dollar)

On July 1, Sleepy, Inc. purchased 100 of Rabbit Co.'s 6%, $1,000 bonds. The bonds, which pay interest on March 1 and September 1, were purchased at 102 plus accrued interest to yield 4%. The investment was classified as held-to-maturity securities. Effective interest amortization is used. Required: Prepare journal entries for a.July 1 b.September 1 c.December 31

Permanent value declines in available-for-sale securities should be