Exam 15: Investments and Fair Value Accounting

The cost method of accounting for stock

Any gains or losses on the sale of bonds normally would be reported in the Other Income (Loss) section of the income statement.

Mangrill, Inc. reported net income for the year ending December 31, 2012 of $483,500. Dividends paid during the year totaled $42,900. The company holds available-for-sale securities with an original cost of $162,000 and a fair value of $171,000 at the end of the year. They also hold trading securities with an original cost of $150,000 and a fair value of $147,000. Retained Earnings on January 1, 2012 was $736,400 and Accumulated Other Comprehensive Income on January 1, 2012 was $16,200. Required: Calculate the following balances to be reported in the financial statements dated December 31, 2012. (1) Valuation Allowance for Available-for-Sale securities (2) Comprehensive Income (3) Retained Earnings (4) Accumulated Other Comprehensive Income

Under the equity method, a stock purchase is recorded at its original cost and is adjusted to fair market value each accounting period.

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.

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

Following is data for the available-for-sale securities held by AdBrand Company as of December 31, 2012. Required: (1) Complete the table above to find the total cost and fair value for the company's available-for-sale securities portfolio. (2) Calculate and record the required December 31, 2012 adjustment. (3) Explain how the adjustment from step (2) is reported on AdBrand's 2012 financial statements.

On January 1, 2014, Blanton Company's Valuation Allowance for Trading Investments account has a debit balance of $23,200. On December 31, 2014, the cost of the trading securities portfolio was $80,000. The fair value was $98,000. Which of the following would Blanton report on the income statement for 2014?

Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

The cost and fair value of the trading securities held by AdBrand Company as of December 31, 2012 are as follows: Required: (1) Complete the table above to find the total cost and fair value for the company's trading securities portfolio. (2) Calculate and record the required December 31, 2012 adjustment. (3) Explain how the adjustment from step (2) is reported on AdBrand's 2012 financial statements.

Journalize the entries to record the following selected transactions of Oliver Co.:

Temporary 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 one company owns more than 50% of the common stock of another company

In order to maintain the original value of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on February 1, 2015, will include:

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

The account Unrealized Gain (Loss) on Available-For-Sale Securities should be included in the

Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives?