Exam 16: Accounting for Debt and Share Investments

If one company owns more than 20% of the shares of another company and the shares are being held as a long-term investment,which method would normally be used to account for this investment?

Explain the difference between investments in debt securities and investments in equity securities.

Mercury Corporation had the following long-term investment transactions. Prepare the journal entries Mercury Corporation should record for these transactions.

On January 4,Year 1,Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus a broker's fee of $2,000.Warner Corp has 50,000 common shares outstanding and it is presumed the Larsen Corp will have a significant influence over Warner Corp.During Year 1 and Year 2,Warner Corp declared and paid cash dividends of $0.85 per share.Warner Corp's net income was $72,000 and $67,000 for Year 1 and year 2,respectively.The January 12,Year 3 entry to record the sale of 5,000 shares of Warner Corp for $65,000 should be:

Capilano Corporation has just decided to purchase 30% of the outstanding common shares of its major supplier Langkwat Corporation.Give two reasons why Capilano Corporation may have made this investment.The reasons given cannot include: ▪ To earn greater dividend income on available excess cash than can be earned by leaving the cash in a typical bank account. ▪ To earn a gain over the original purchase price on the eventual sale of the purchased shares.

Identify the reason(s)why investments are made in other corporations.

The method of accounting for an investment under the fair value under profit or loss is irrevocable after initial designation.

Non-strategic debt investments are initially recorded using either the fair value through profit or loss method or amortized cost method.

Halifax Company purchased $50,000 worth of bonds (par value)and held them to maturity.The journal entry at maturity should include a debit to Cash for $50,000 and a credit to Long-term Investment in Bonds for $50,000.

Consolidated statements are prepared as if a company is organized as one entity,with the amounts allocated for subsidiaries reported in the investment accounts.

As an investment in associates,Music City purchased 2,000 Asta Corp common shares for $143,000.Music City also paid $375 in commissions on the transaction.The entry to record the transaction would include a:

When a business operates as a parent company with subsidiaries,the accounting records are combined into one set of consolidated records.

If you receive assets in exchange for issuing securities that the purchaser will classify as Investments you are known as a(n)_______________________.

"Share investment" and "equity security" are interchangeable terms.

As a significant influence investment,Music City held 1,500 Navia Ltd common shares with a carrying value of $55,275.It sold the shares on December 13 for $74,387.Prepare the journal entry to record the sale.

IFRS requires the fair value through profit and loss method for:

Investments in non-strategic equity investments:

Brokerage costs and transaction costs can be included as part of the cost of non-strategic investments.

A(n)________________ represents one company's purchase of the shares in another company.

As a long-term investment,Ellen Co.paid $700,000 (par value)for Nickel Bank bonds.The bonds pay 5.5% interest semiannually on September 1 and March 1.Prepare the journal entries for the following transactions.Round all values to the nearest dollar. (1)Purchase on September 1,2014. (2)Year-end adjusting entry,December 31,2014. (3)Receipt of semiannual interest payment March 1,2015. (4)Redemption of the bonds at maturity.