Question 1

On January 1,2014,Emont Enterprises purchased 35 percent of the outstanding shares of stock of Leshner Corp.for $175,000 cash.The investment will be accounted for by the equity method.On that date,Leshner's net assets (book and fair value)were $300,000.Emont has determined that the excess of the cost of its investment in Leshner over its share of Leshner's net assets is attributable to equipment whose market value exceeds its carrying value by $150,000 and to an operating license whose market value exceeds its carrying value by $125,000.The remaining useful life of the equipment is ten years and the remaining useful life of the operating license is 20 years.
Leshner's net income for the year ended December 31,2014,was $80,000.During 2014,Emont received $3,500 cash dividends from Leshner.There were no other transactions between the two companies.
Compute the amount that would be reported on Emont Associates' books for the investment in Leshner Corp.at December 31,2014.

Accepted Answer

The answer of On January 1,2014,Emont Enterprises purchased 35 percent...

Question 2

On February 1,2014,Andover Inc.had excess cash on hand.The controller suggested to management that the company buy $300,000 of U.S.Treasury bonds selling at 102 and paying 8 percent interest.Interest payments on these bonds are made semiannually on January 1 and July 1.
(1)Prepare entries to record the February purchase of U.S.Treasury bonds and the subsequent collection of interest on July 1,using
(a)the asset approach.
(b)the revenue approach.
(2)Assuming that these bonds were acquired as an investment in trading securities,explain whether the premium or discount should be amortized.

Accepted Answer

The answer of On February 1,2014,Andover Inc.had excess cash on...

Question 3

Eric Company reports its income from its investment in Kate Company under the equity method.Eric recognized income of $150,000 from its investment in Kate during the current year.No dividends were declared or paid by Kate during the year.Eric would show the $150,000 in its statement of cash flows for the current year prepared under the indirect method as

Accepted Answer

A) cash from investing activities. 
B) a reduction of the investment account. 
C) a deduction from net income in the operating activities section. 
D) a noncash activity.

Question 4

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

Accepted Answer

A) reduces the investment account. 
B) increases the investment account. 
C) reduces both investment income and the investment account. 
D) is not recorded.

Question 5

On January 1,2014,Sudan Company purchased investment securities costing $4,000 and classified them as trading securities.During 2014,Sudan Company sold a portion of these trading securities with a cost of $1,800 for $1,500.The market value of the remainder of these trading securities at December 31,2014,was $1,400.Sudan prepares its statement of cash flows using the indirect method.
Which of the following represents the effect of these transactions on the statement of cash flows for Sudan Company for the year ending December 31,2014?

Accepted Answer

The answer of On January 1,2014,Sudan Company purchased investment securities...

Question 6

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

Accepted Answer

A) reporting an unrealized loss in security investments in the stockholders' equity section of the balance sheet. 
B) reporting an unrealized loss in security investments in the income statement. 
C) a footnote to the financial statements. 
D) a credit to Investment in Available-for-Sale Securities.

Question 7

During 2013,Rubble Company purchased marketable equity securities as a short-term investment and classified them as trading securities.The cost and market value at December 31,2013,were as follows:

Rubble sold 1,000 shares of Company Y stock on March 16,2014,for $24 per share,incurring $1,300 in brokerage commissions and taxes.On the sale,Rubble should report a realized loss of

Accepted Answer

A) $0. 
B) $1,550 
C) $2,300 
D) $2,800

Question 8

Changes in fair value of securities are reported in the stockholders' equity section of the balance sheet for which type of securities?

Accepted Answer

A) Marketable equity securities 
B) Available-for-sale securities 
C) Trading securities 
D) Held-to-maturity securities

Question 9

Springer Inc.carries the following marketable equity securities on its books at December 31,2013,and 2014.All securities were purchased during 2013 and there were no beginning balances in any market adjustment accounts.
  
The cost method is used in accounting for all investments in securities.
(1)Give the entries necessary to record the valuations for both trading and available-for-sale securities at December 31,2013 and 2014.
(2)What net effect would these valuations have on 2013 and 2014 net income?

Accepted Answer

The answer of Springer Inc.carries the following marketable equity securities...

Question 10

A credit balance in the account Market Adjustment--Trading Securities at the end of a year should be interpreted as the net

Accepted Answer

A) realized holding loss to date. 
B) unrealized holding loss to date. 
C) realized holding loss for that year. 
D) unrealized holding loss for that year.

Question 11

In January of 2014,Bonnie Corporation acquired 20% of the outstanding voting common stock of Clyde Company for $280,000.This investment enabled Bonnie to exercise significant influence over Clyde.The book value of the acquired shares was $210,000.The excess of cost over book value was attributed to an identifiable intangible asset that was undervalued on Clyde's balance sheet and that had a remaining useful life of 10 years.
For the year ended December 31,2014,Clyde reported income of $63,000 and paid cash dividends of $14,000 on its common stock.What is the proper carrying value of Bonnie's investment in Clyde at December 31,2014?

Accepted Answer

A) $270,000 
B) $273,000 
C) $280,000 
D) $282,800

Question 12

Antoine Company began business in February 2013.During the year,Antoine purchased the three trading securities listed below.On its December 31,2013,balance sheet,Antoine appropriately reported a $4,000 debit balance in its Market Adjustment--Trading Securities account.There was no change in 2014 in the composition of Antoine's portfolio of marketable equity securities held as a temporary investment.Pertinent data are as follows:

What amount should Antoine credit to the Market Adjustment--Trading Securities account at December 31,2014?

Accepted Answer

A) $0 
B) $3,000 
C) $7,000 
D) $11,000

Question 13

The Financial Accounting Standards Board had several goals in issuing ASC Topic 320 (Investments Debts and Equity Securities)and changing the accounting for certain debt and equity securities from a lower-of-cost-or-market basis to a fair value basis.Among these goals was the elimination of what is termed "gains trading."
Explain the meaning of the term "gains trading."

Accepted Answer

The answer of The Financial Accounting Standards Board had several...

Question 14

On October 1,Ryan Company purchased $200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and classified them as held-to-maturity securities.Interest is paid semiannually on January 1 and July 1.Brokerage fees for this transaction were $700.At what amount should this acquisition of bonds be recorded?

Accepted Answer

A) $196,000 
B) $196,700 
C) $202,000 
D) $202,700

Question 15

On April 1,2014,Ziba Inc.purchased as a temporary investment $100,000,face amount,10% U.S.Treasury notes; they pay interest semiannually on January 1 and July 1.The notes were purchased at 102.Which of the following entries correctly records this purchase?

Accepted Answer

The answer of On April 1,2014,Ziba Inc.purchased as a temporary...

Question 16

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
(1)the cost method classified as available-for-sale securities.
(2)the equity method.

Accepted Answer

The answer of On January 1,2014,Palsoe Corp.acquired 30 percent (13,000...

Question 17

Angular Co.purchased the following portfolio of available-for-sale securities during 2014 and reported the following balances at December 31,2014.No sales occurred during 2014.All declines are considered to be temporary.

Angular Co.should report what amount related to the securities transactions in its 2014 income statement?

Accepted Answer

A) $0 
B) $2,000 unrealized loss 
C) $10,000 unrealized loss 
D) $12,000 unrealized loss

Question 18

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?

Accepted Answer

A) Understate, overstate 
B) Overstate, understate 
C) Overstate, overstate 
D) Understate, understate

Question 19

Ignoring income taxes,choose the correct response below regarding total stockholders' equity resulting from classifying all investments for a firm either as trading securities or securities available-for-sale.

Accepted Answer

A) Stockholders' equity is the same regardless of the classification 
B) Stockholders' equity is greater if the investments are classified as available-for-sale. 
C) .Stockholders' equity is greater if the investments are classified as trading securities. 
D) If there have been unrealized gains, classification as trading securities results in higher stockholders' equity.

Question 20

On August 31,2014,Steinway Company purchased the following available-for-sale securities:

On December 31,2014,Steinway reclassified its investment in security I from available-for-sale securities to trading securities.What total amount of loss on these securities should be included in Steinway' income statement for the year ended December 31,2014?

Accepted Answer

A) $0 
B) $16,000 
C) $22,000 
D) $28,000

Exam 14: Investments in Debt and Equity Securities