Question 1

Blanton Corporation purchased 35% 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 from Worton Corporation?

Accepted Answer

A)  debit Investment in Worton Corporation Stock; credit Cash 
B)  debit Cash; credit Dividend Revenue 
C)  debit Investment in Worton Corporation Stock; credit Income of Worton Corporation 
D)  debit Cash; credit Investment in Worton Corporation Stock

Question 2

Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be

Accepted Answer

A)  debit Cash, $105,000; credit Investment-Evans Company Bonds, $104,500, and Interest Revenue, $500 
B)  debit Cash, $105,000; credit Investment-Evans Company Bonds, $100,000, and Gain on Sale of Investments, $5,000 
C)  debit Cash, $104,500, and Interest Receivable, $500; credit Investment-Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500 
D)  debit Cash, $105,000; credit Investment-Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500

Question 3

LM's, Inc. reported net income for the year ending December 31 of $483,500. Dividends paid during the year totaled $52,900. The company holds available-for-sale securities with an original cost of $162,000 and a fair value of $181,000 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 was $736,400 and accumulated other comprehensive income on January 1 as $16,200.
Calculate the following balances to be reported in the financial statements dated December 31.
a) Valuation allowance for available-for-sale securities
b) Comprehensive income
c) Retained earnings
d) Accumulated other comprehensive income

Accepted Answer

The answer of LM's, Inc. reported net income for the...

Question 4

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase would include a

Accepted Answer

A)  debit to Investments for $132,000 
B)  credit to Cash for $132,000 
C)  debit to Investments for $132,240 
D)  credit to Investments for $240

Question 5

Changes in the value of available­for­sale securities

Accepted Answer

A)  are reported as part of stockholders' equity 
B)  are recognized on the income statement 
C)  are not recognized 
D)  are recognized on the income statement and as part of stockholders' equity

Question 6

On January 1, the Valuation Allowance for Trading Investments account has a zero balance. On December 31, the cost of trading securities portfolio was $64,200, and the fair value was $67,000.
Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments.

Accepted Answer

The answer of On January 1, the Valuation Allowance for...

Question 7

Held-to-maturity securities

Accepted Answer

A)  are reported at their fair market value on the balance sheet date 
B)  include both stocks and bonds 
C)  are primarily purchased to earn interest revenue 
D)  all are correct

Question 8

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of the Lucas Company. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.
Prepare the journal entries for the original purchase, dividend, and sale.

Accepted Answer

The answer of On February 12, Addison, Inc. purchased 6,000...

Question 9

On July 5, Winter Company had a market price of $58 per share of common stock. For the prior year, Winter Co. had paid an annual dividend of $3.48 per share. What is the dividend yield for Winter Company?

Accepted Answer

A)  6.0% 
B)  0.6% 
C)  16.67% 
D)  1.67%

Question 10

Match each of the definitions that follow with the appropriate investment term a-j).
-a corporation controlled by another corporation that owns all or the majority of its voting stock

Accepted Answer

A) equity method 
B) parent company 
C) subsidiary company 
D) consolidated financial statements 
E) fair value
F)unrealized gain or loss on investments.
G)valuation allowance for investments
H)dividend yield
I)amortized cost
J)cost method

Question 11

Match each of the definitions that follow with the appropriate investment term a-j).
-what occurs when a company purchases 50% or more of another company's stock

Accepted Answer

A) debt securities 
B) equity securities 
C) investor 
D) investee 
E) cost method
F)trading securities
G)available-for-sale securities
H)held-to-maturity securities
I)equity method
J)business combination

Question 12

All of the following are disadvantages of fair value use except

Accepted Answer

A)  fair values may not be readily obtainable 
B)  fair values may cause more fluctuations as change occurs from period to period 
C)  comparability between companies may be impacted by different fair value measurement 
D)  fair values only affect balance sheet accounts

Question 13

Held-to-maturity securities

Accepted Answer

A)  are reported at fair market value 
B)  include stocks as well as bonds 
C)  may be reported as current or noncurrent assets 
D)  all of these

Question 14

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 15

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

Accepted Answer

A)  $12,750 gain 
B)  $600 gain 
C)  $600 loss 
D)  $9,250 loss

Question 16

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

Accepted Answer

A)  parent 
B)  minority interest 
C)  affiliate 
D)  subsidiary

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is

Accepted Answer

A)  5% 
B)  10% 
C)  25% 
D)  20%

Question 19

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Accepted Answer

A) True 
 B)False

Question 20

Temporary investments

Accepted Answer

A)  are reported as current assets 
B)  include cash equivalents 
C)  do not include equity securities 
D)  all are correct

Exam 13: Investments and Fair Value Accounting

Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be

Changes in the value of availableforsale securities

Held-to-maturity securities

On July 5, Winter Company had a market price of $58 per share of common stock. For the prior year, Winter Co. had paid an annual dividend of $3.48 per share. What is the dividend yield for Winter Company?

Match each of the definitions that follow with the appropriate investment term a-j) . -a corporation controlled by another corporation that owns all or the majority of its voting stock

Match each of the definitions that follow with the appropriate investment term a-j) . -what occurs when a company purchases 50% or more of another company's stock

All of the following are disadvantages of fair value use except

Held-to-maturity securities

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Temporary investments

Exam 13: Investments and Fair Value Accounting

Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be

Changes in the value of available­for­sale securities

Held-to-maturity securities

On July 5, Winter Company had a market price of $58 per share of common stock. For the prior year, Winter Co. had paid an annual dividend of $3.48 per share. What is the dividend yield for Winter Company?

Match each of the definitions that follow with the appropriate investment term a-j) . -a corporation controlled by another corporation that owns all or the majority of its voting stock

Match each of the definitions that follow with the appropriate investment term a-j) . -what occurs when a company purchases 50% or more of another company's stock

All of the following are disadvantages of fair value use except

Held-to-maturity securities

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Temporary investments

Changes in the value of availableforsale securities