Exam 14: Investments in Debt and Equity Securities

Which category includes only debt securities?

On January 1,2014,Farming Associates purchased 25 percent of the outstanding shares of stock of Anders Corp.for $125,000 cash.The investment will be accounted for by the equity method.On that date,Anders's net assets (book and fair value)were $250,000.Farming has determined that the excess of the cost of its investment in Anders over its share of Anders's net assets is attributable to equipment whose market value exceeds its carrying value by $95,000 and to an operating license whose market value exceeds its carrying value by $95,000.The remaining useful life of the equipment is ten years and the remaining useful life of the operating license is 20 years. Anders's net income for the year ended December 31,2014,was $55,000.During 2014,Farming received $4,500 cash dividends from Anders.There were no other transactions between the two companies. Compute the amount that would be reported on Farming Associates' books for the investment in Anders Corp.at December 31,2014.

FASB Statement No.115 generally applies when the level of ownership of another company is at what percentage?

Cartel Inc.owns 35 percent of Elliott Corporation.During the calendar year 2014,Elliott had net earnings of $300,000 and paid dividends of $36,000.Cartel mistakenly accounted for the investment in Elliott using the cost method rather than the equity method of accounting.What effect would this have on the investment account and net income,respectively?

Under the cost method of accounting for unconsolidated investments in common stock,goodwill amortization

On January 1,2014,Palsoe Corp.acquired 30 percent (13,000 shares)of Nostay Services Inc.common stock for $1,300,000 as a long-term investment.Data from Nostay's 2014 financial statements include the following: The market value of Nostay Services Inc.common stock on December 31,2014,was $98 per share.Palsoe does not have any other noncurrent investments in securities. Prepare the necessary journal entries for Palsoe's investment in Nostay Services Inc.common stock under

On August 1,2013,Abruzzo Corp.acquired 10,000 of the outstanding shares of Tuscany Co.On January 2,2014,Abruzzo acquired an additional 20,000 shares of Tuscany Co. ,which brought the total ownership to 30,000 shares.Using the normal guidelines for percentages of ownership and assuming that Tuscany Co.had 100,000 shares outstanding during 2013 and 2014,Abruzzo Corp.should account for the investment in Tuscany Co.by using the

If the combined market value of trading securities at the end of the year is less than the market value of the same portfolio of trading securities at the beginning of the year,the difference should be accounted for by

The following transactions of the Macheski Company were completed during the fiscal year just ended: Prepare the entries necessary to record the above transactions.

Tarkenton Corporation purchased the following portfolio of trading securities during 2014 and reported the following balances at December 31,2014.No sales occurred during 2014.All declines are considered to be temporary. The only transaction in 2015 was the sale of security Z for $35,000 on December 31,2015.The market values for the other securities at December 31,2015,were the same as at December 31,2014.Tarkenton's entry to record the sale of security Z would include a

If the combined market value of available-for-sale securities at the end of the year is less than the market value of the same portfolio of available-for-sale securities at the beginning of the year,the difference should be accounted for by

In 2014,Quito Inc.purchased stock as follows: At December 31,2014,the market values of the securities were as follows: The investments in common stock are classified by Quito Inc.as available-for-sale securities accounted for by the cost method.The fiscal year of Quito ends on December 31.

The market rate of interest for a bond issue that sells for more than its par value is

Consolidated financial statements are typically prepared when one company has

Elio Co.purchased the following portfolio of trading securities during 2014 and reported the following balances at December 31,2014.No sales occurred during 2014.All declines are considered to be temporary. The carrying value of the portfolio at December 31,2014,on Elio Co.'s balance sheet would be

When an entity reduces its interest in an investment in equity securities accounted for by the equity method,and changes to the fair value method,what is the initial cost value for purposes of subsequent changes in market value?

Anson Company began operations in 2013.The company's trading securities portfolio,which did not change in composition during 2014,is as follows: Ignoring income taxes,what amount should be reported as an unrealized loss on trading securities in Anson's 2014 income statement?

On January 1,2014,Amber Inc.purchased 30 percent of the outstanding common stock of Collar Corporation for $516,000 cash.Amber is accounting for this investment using the equity method.On the date of acquisition,the fair value of Collar' net assets was $1,240,000.Amber has determined that the excess of the cost of the investment over its share of Collar' net assets is attributable to goodwill.Collar' net income for the year ended December 31,2014,was $360,000.During 2014,Collar declared and paid cash dividends of $40,000.There were no other transactions between the two companies.On December 31,2014,the investment in Collar should be recorded as

Aronson,Inc.began business on January 1,2014,and at December 31,2014,Aronson had the following investment portfolios of equity securities: None of the declines is judged to be other than temporary.Unrealized losses at December 31,2014,should be recorded with corresponding charges against Stockholders' Income Equity

When an investor uses the cost method to account for investments in common stock,cash dividends received by the investor from the investee should normally be recorded as