Question 1

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

Accepted Answer

The answer of Discuss the appropriate financial treatment when an...

Question 2

On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.

Accepted Answer

The answer of On April 1, 2015, ValueTime, Inc. had...

Question 3

If one company owns more than 50% of the common stock of another company

Accepted Answer

A)  a partnership exists. 
B)  a parent-subsidiary relationship exists. 
C)  the company whose stock is owned must be liquidated 
D)  the cost method should be used to account for the investment.

Question 4

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?

Accepted Answer

A)  $50,000 
B)  $50,500 
C)  $49,500 
D)  $53,000

Question 5

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Accepted Answer

The answer of On May 1, 2012, Chase Inc. purchases...

Question 6

Interest revenue on bonds is reported

Accepted Answer

A)  as an addition to the Investment in Bonds account 
B)  as part of Comprehensive Income but not as part of Net Income. 
C)  as part of other income 
D)  as part of operating income

Question 7

Blanton Corporation purchased 15% 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?

Accepted Answer

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

Question 8

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 9

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

Accepted Answer

A) True 
 B)False

Question 10

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, 6% Manus Corporation bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when purchasing the bonds?

Accepted Answer

The answer of On May 1, 2015, Chase Inc. purchases...

Question 11

Present entries to record the following selected transactions of Masterson Co.

Accepted Answer

The answer of Present entries to record the following selected...

Question 12

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

Accepted Answer

A) True 
 B)False

Question 13

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 for the sale would include:

Accepted Answer

A)  a debit to Cash for $111,840 
B)  a credit to Investments for $112,000 
C)  a credit to Loss on Sale for $23,680 
D)  a debit to Cash for $112,000

Question 14

It is possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Accepted Answer

A) True 
 B)False

Question 15

The account Unrealized Gain (Loss) on Trading Securities should be included in the

Accepted Answer

A)  Income statement as Other Revenue (Expenses) 
B)  Balance sheet as an adjustment to the asset account 
C)  Balance sheet as an adjustment to Stockholders' Equity 
D)  Statement of Retained Earnings

Question 16

For accounting purposes, the method used to account for investments in common stock is determined by

Accepted Answer

A)  the amount paid for the stock by the investor. 
B)  whether the acquisition of the stock by the investor was "friendly" or "hostile." 
C)  the extent of an investor's influence over the operating and financial affairs of the investee. 
D)  whether the stock has paid dividends in past years.

Question 17

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

Accepted Answer

The answer of On May 1, 2015, Chase Inc. purchases...

Question 18

Companies may report comprehensive income on each of the statements below except

Accepted Answer

A)  income statement 
B)  separate statement of comprehensive income 
C)  statement of cash flows 
D)  retained earnings statement

Question 19

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

Accepted Answer

A)  cost method 
B)  market method 
C)  income method 
D)  equity method

Question 20

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

Accepted Answer

A) True 
 B)False

Exam 13: Investments and Fair Value Accounting

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.

If one company owns more than 50% of the common stock of another company

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Interest revenue on bonds is reported

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?

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, 6% Manus Corporation bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when purchasing the bonds?

Present entries to record the following selected transactions of Masterson Co.

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

It is possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

The account Unrealized Gain (Loss) on Trading Securities should be included in the

For accounting purposes, the method used to account for investments in common stock is determined by

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

Companies may report comprehensive income on each of the statements below except

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).