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Exam 13: Investments and Fair Value Accounting

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Question 71

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Trading securities are

A) reported at fair value on the balance sheet and as unrealized gains or losses on the income statement
B) not reported on the balance sheet
C) reported as unrealized gains or losses on the income statement
D) reported at fair value in the balance sheet

E) None of the above
F) B) and D)

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Question 72

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Journalize the entries to record the following selected equity investment transactions completed by Flurry Company during the current year. Flurry’s purchase represents less than 20% of the total outstanding Braxter stock. February 2 $\quad$ Purchased for cash 500 shares of Braxter Co. stock for $34 per share plus a $250 brokerage commission. April 16 $\quad$ Received dividends of $0.35 per share on Braxter Co. stock. June 17 $\quad$ Sold 100 shares of Braxter Co. stock for $40 per share less a $100 brokerage commission.

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Question 73

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If the bonds are purchased between interest dates,the purchase price includes accrued interest since the last interest payment.

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.

The equity method of accounting for investments

A disadvantage of fair value use is that the comparability between companies may be impacted by different fair value measurements.

Herberto Company had a net income of $74,000 and other comprehensive loss of $8,500 for the year.On January 1,the retained earnings balance was $425,000 and the accumulated other comprehensive income balance was $52,000.Determine the a comprehensive income for the year,b retained earnings balance on December 31,and c the accumulated other comprehensive income on December 31.

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

Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

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.

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

To record a bond investment made between interest payment dates,Investment in Bonds would be debited and Cash and Interest Revenue would be credited.

All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except

Investment in Bonds is listed on the balance sheet after Bonds Payable.

On January 1,Butte Company's Valuation Allowance for Trading Investments account has a debit balance of $23,200.On December 31,the cost of the trading securities portfolio was $80,000.The fair value was $98,000.Which of the following would Butte report on the income statement for the current year?

Which of the following is not a reason to invest excess cash in temporary investments?

When long-term investments in bonds are sold before their maturity date,the seller deducts any accrued interest since the last interest payment date from the selling price.

Investments in bonds that management intends to hold to maturity are called trading securities.

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

Investment in certificates of deposit and other securities that do not change in value are reported on the balance sheet as