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Exam 13: Investments and Fair Value Accounting

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Question 41

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During the first year of operations,Makala Company purchased two available-for-sale investments as follows: $\begin{array}{|l|c|c|}\hline \text { Security } & \text { Shares Purchased } & \text { Cost } \\\hline \text { Oceanna Company } & 700 & \$ 29,000 \\\hline \text { Rockledge, Inc. } & 1,900 & 41,000 \\\hline\end{array}$ Assume that as of December 31,the Oceanna Company stock had a market value of $49 per share and Rockledge,Inc.stock had a market value of $20 per share.Makala had 10,000 shares of no par stock outstanding that was issued for $150,000.For the year ending December 31,Makala had a net income of $105,000.No dividends were paid. a. Prepare the current assets section of the balance sheet presentation for the available-for sale securities as of December 31. b. Prepare the stockholders' equity section of the balance sheet as of December 31.

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Question 42

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The primary objectives of investing in temporary investments is to

A) all of these
B) realize gains from increases in market price of the securities
C) receive dividends
D) earn interest revenue

E) A) and B)
F) C) and D)

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Question 43

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Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment.Tomas Corporation reported a $20,000 net loss.Zach Company's entry would include a

Gale Company owns 87% of the outstanding stock of Leonardo Company.Leonardo Company is referred to as the

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method.Assuming that Wendell Company purchased the stock several years ago,the balance in the investment account would be equal to the cost of the

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.

Under the equity method,the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

Temporary investments are recorded at their cost,which would include broker's commissions.

The dividend yield is measured as

An investor purchased 500 shares of common stock,$25 par,for $19,250.Subsequently,100 shares were sold for $35 per share.What is the amount of gain or loss on the sale?

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

Temporary investments

Which of the following would be considered an "other comprehensive income" item?

a Discuss factors contributing to the trend to fair value accounting. b What are some of the disadvantages associated with using fair value?

An equity investment in less than 20% of another company's stock is accounted for using the cost method.

Comprehensive income does not affect net income or retained earnings.

Skyline,Inc.purchased a portfolio of trading securities during the current fiscal year.The cost and fair value of this portfolio on December 31,was as follows: $\begin{array}{|l|r|r|r|}\hline \text { Name } & \text { Number of Shares } & \text { Total Cost } & \text { Total Fair Value } \\\hline \text { Alcon, Inc. } & 1,200 & \$ 16,000 & \$ 15,000 \\\hline \text { Easton Company } & 700 & 23,000 & 21,500 \\\hline \text { Panther Company } & 300 & \underline {9,000} & \underline {9,200} \\\hline \text { Total } & & \underline {\$ 48,000} &\underline { \$ 45,700 }\\\hline\end{array}$ a. Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31. b. Where will the information from the journal entry be reported on the financial statements?

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1.Marco reported net income of $95,000 and declared dividends of $35,000 during the year.How much would Ramiro adjust its investment in Marco Company under the equity method?

The account Unrealized Gain Loss on Available-for-Sale Investments should be included on the

On May 1, Pierce Company purchased $60,000 of Stanton Company’s 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest. -The journal entry Pierce will record on June 30 will include a