Exam 13: Investments and Fair Value Accounting

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

As with other assets, the cost of a bond investment includes all costs related to the purchase.

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1, 2012. Reyes reported net income of $155,000 and declared dividends of $40,000 during 2012. How would these events be reported by Sutton using the cost method?

Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

The income statement for Dodson Corporation reported net income of $22,400 for the year ended December 31, 2012 before considering the following: During the year the company purchased available-for-sale securities. At year end, the fair value of the investment portfolio was $2,100 more than cost. The balance of retained earnings was $83,000 on December 31, 2011. Dobson Corporation paid $9,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

Skyline, Inc. purchased a portfolio of trading securities during 2012. The cost and fair value of this portfolio on December 31, 2012, was as follows: Required: Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31, 2012. Where will the information from the journal entry be reported on the financial statements?

Prepare the journal entries for the following transactions for Morgan Co.

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include:

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

On January 1, 2012, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2012, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31, 2012.

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for 2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

Companies may report comprehensive income on each of the statements below except