Exam 12: Investments

On March 25th, 2018 Phillips Corporation purchased bonds of Atlas Corporation for $132 million and classified the securities as trading securities. On December 31st, 2018 these bonds were valued at $150 million. Four months later, on April 3rd, 2019 Phillips Corporation sold these bonds for $140 million. -As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should next take the second step of recording a sales transaction where it:

On January 1, 2018, Wildcat Company purchased $93,000 of 10% bonds at face value. The bonds are to be held to maturity. The bonds pay interest semiannually on January 1 and July 1. Required: (1.) Prepare the appropriate journal entry to record the acquisition of the bonds. (2.) Record the first two interest payments (ignore year-end accruals).

Beresford Inc. purchased several investments in debt securities during 2018, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. -What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2019 balance sheet (ignore taxes)?

Hawk Corporation purchased 1,000 Diamond Corporation bonds in 2015 for $500 per bond and classified the investment as securities available for sale. The value of the Diamond investment was $600 per bond on December 31, 2016, and $650 on December 31, 2017. During 2018, Hawk sold all of its Diamond investment at $700 per bond. In its 2018 income statement, Hawk would report:

Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on January 1, 2018. On November 1, 2018, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss of $6 million for the year. What amount of loss should Sox report on its income statement for 2018 relative to its investment in Hack?

In its 2018 annual report to shareholders, Kirby Inc. included the following disclosure regarding its available for sale investments in securities: -Required: Prepare the journal entry (in thousands) that Kirby made at the end of 2018 to record unrealized holding gains arising during the year.

Which of the following is not true about the "fair value through profit and loss" approach for accounting for investments under IFRS?

Wang Corporation purchased $100,000 of Hales Inc. 6% bonds at par with the intent and ability to hold the bonds until they matured in 2022, so Wang classifies its investment as held to maturity. Unfortunately, a combination of problems at Hales and in the debt market caused the fair value of the Hales investment to decline to $70,000 during 2018. Wang views this decline as an other-than-temporary (OTT) impairment. Wang calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and $20,000 relates to non-credit losses. If Wang accounts for the Hales bonds under IAS No. 39, before-tax net income for 2018 will be reduced by:

Jeremiah Corporation purchased debt securities during 2018 and classified them as securities available for sale: All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2018, income statement relative to the portfolio?

Investments in securities to be held for an unspecified period of time are reported at:

Investments in debt securities available for sale are reported at:

GAAP regarding fair value accounting for investments in equity securities will generally apply to an investment when the percentage of ownership of another company is:

Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet?

When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost.

Consolidated financial statements are prepared when one company has:

Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date. During 2018 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2018. Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill calculated upon the purchase of Webb's stock, assuming Bourne accounts for the Webb investment under the equity method.

In the statement of cash flows, inflows and outflows of cash from buying and selling available for sale securities are considered:

On January 1, 2018, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on January 1 and July 1 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2018 journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:

Many corporations own more than 50% of the voting stock in other corporations. Sometimes these affiliated companies operate within the same industry, and many times the companies are in unrelated industries. Required: What is the significance of owning more than 50% of the voting common stock of another company?

Unrealized holding gains and losses on securities available for sale would have the following effects on accumulated other comprehensive income: