Exam 16: Accounting for Debt and Share Investments

A business combination occurs when an investor with a long-term share investment that represents more than 50% of the investee's voting shares has control over the investee.

Music City paid $37,800 plus a broker's fee of $525 to acquire 8% Airport Corp bonds with a $40,000 maturity value.Music City intends to hold the bonds to maturity.The proceeds Music City receives at maturity will be:

Investments in shares are the same as debt investments.

On December 31,as a short term investment,Music City purchased 300 Radio Land Corporation common shares at $50 per share plus a $50 commission.The amount recorded as a debit to Short-term Investments- Radio Land would be:

For non-strategic debt investments,the fair value through profit and loss method allows the inclusion of any transaction costs in addition to the purchase price.

Investments are often made by companies with excess cash hoping to earn a higher return than might be realized by holding cash in the bank.

Non-strategic equity investments securities are equity securities that the company has the intent and ability to hold until maturity.

On January 5,2015,Erin Ridge Corp.purchased 28,000 shares of Forest Lawn Inc.common shares for $146,000 plus a broker's fee of $1,000.Forest Lawn Inc.has 50,000 common shares outstanding and has acknowledged the fact that its policies will be significantly influenced by Erin Ridge.The investment should be accounted for as a non-equity investment using the fair value method.

Classical City holds $40,000 worth of 7% bonds (par value)as debt investments.The journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

When an investment in equity securities is sold,the gain or loss is calculated by comparing proceeds from the sale with the book value of the investment on the date of sale.

In a joint venture,the venture would use the equity method to account for their share of the joint venture.

An investor that significantly influences the operations of an investee should account for the investment using the equity method.

When you purchase a debt investment such as a bond of another corporation,this type of investment represents an "equity security."

On January 1,X Corporation purchased 80% of Y Corporation for $250,000.On May 20,Y Corporation declared total dividends of $30,000.At year-end Y Corporation reported net income of $150,000.The balance in X Corporation's Investment in Y Corporation account at December 31 should be:

____________ securities are securities a company intends and is able to hold until maturity.

Explain how significant influence or investments in associates are reported on the balance sheet and income statement.

Investments in associates are reported as ______________ on the balance sheet.

Consolidation combines the financial statements of an investor company and a joint venture enterprise based on the investor's proportionate share of the financial statements of the joint venture.

Management's intent and the marketability of a security determine whether or not a security is classified as a long-term or current asset.

A company that owns 100% of the outstanding shares of a subsidiary is required to take over the subsidiary's assets,cancel the subsidiary's shares,and merge the subsidiary into the parent.