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Exam 26: Investments

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Question 111

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All of the following statements regarding accounting for stock investments with insignificant influence under U.S.GAAP are true except:

A) When an investor owns less than 20% of voting stock,the investor is presumed to have insignificant influence.
B) Stock investments with insignificant influence are reported at fair value.
C) The investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.
D) Stock investments with insignificant influence are classified as either short or long term based on managers' intent and the stock's marketability.
E) Any unrealized gain (or loss) from a change in the fair value of stock investments is reported on the income statement.

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

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Question 112

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Short-term investments are also called marketable securities.

A) True
B) False

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Question 113

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Hubbard Company had the following trading securities in its portfolio at December 31.The Fair Value Adjustment-Trading account had a balance of zero prior to any year-end adjustment.Prepare the appropriate adjusting journal entry for this portfolio.

On January 1 of the current year,a company paid $150,000 cash to purchase 7%,10-year bonds,with a par value of $150,000; interest is paid semiannually on June 30 and December 31.The company intends to hold these bonds until they mature.Prepare the journal entries to record the bond purchase and receipt of the semiannual interest payments on June 30 and December 31 of the current year.

On January 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds,with a par value of $200,000; interest is paid semiannually each June 30 and December 31.The company intends to hold these bonds until they mature.Prepare the journal entry for the interest received on December 31 of the current year.

On July 31,Potter Co.purchased 2,000 shares of GigaTech stock for $16,000.GigaTech has 100,000 shares currently outstanding.This is the company's first and only stock investment.On October 31,which is Potter's year-end,the stock had a fair value of $20,000.Potter should record a:

________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle,and are readily convertible to cash.

The price of one currency stated in terms of another currency is called a foreign exchange rate.

Landmark Corp.buys $300,000 of Schroeter Company's 8%,5-year bonds payable,at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the 5-year life.When the bonds mature,the journal entry to record the proceeds will be:

An investing company that owns more than ________ of another (investee)company's voting stock is presumed to have controlling influence over the investee.

On October 31,Augustas Co.received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock.Augustas owned 1,200 shares of Lamb Corp.'s stock on October 31 and the investment is considered a stock investment with insignificant influence.Prepare the investor's journal entry to record the receipt of the cash dividends.

Unrealized gains and losses on trading debt securities are reported on the income statement.

Held-to-maturity securities are:

________ financial statements show the financial statements of all entities under the parent's control,including all subsidiaries.

When individual AFS securities are sold,the difference between the cost of the individual securities sold and the net proceeds (sale price less fees)is recorded as a gain or loss on sale of debt investments.

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $60,500.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.The January 2,Year 3,entry to record Barber's sale of 3,000 shares of Convell Company stock,which represents 60% of Barber's total investment,for $39,000 cash,should be:

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.