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Exam 15:Investments

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Question 21

True/False

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

A) True
B) False

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Question 22

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The cost and fair value of the trading securities held by Lindy Company as of December 31 are as follows: ​ $\begin{array}{|l|c|c|c|c|c|}\hline\text { Name } & \begin{array}{c}\text { Number of } \\\text { Shares }\end{array} & \begin{array}{c}\text { Cost } \\\text { per Share }\end{array} & \begin{array}{c}\text { Fair Value } \\\text { per Share }\end{array} & \text { Total Cost } & \text { total Fair Value } \\\hline \text { Laurie, Inc. } & 1,200 & \$ 10.50 & \$ 11.05 \\\hline \text { Scott Corp. } & 600 & 9.00 & 9.85 \\\hline \text { Stephanie Company } & 900 & 4.10 & 4.00 \\\hline \text { Timmer Company } & 1,400 & 7.35 & 6.82 \\\hline \text { Total } & & & \\\hline\end{array}$ ​ (a) Complete the table above to find the total cost and fair value for the company's trading securities portfolio. (b) Calculate and record the required December 31 adjustment. (c) Explain how the adjustment from step (b) is reported on Lindy's financial statements.

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_TB2281_00 ​ _TB2281_00 ​
(c) The unreal...

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Question 23

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Which of the following items would not affect the investor's income for the period?

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

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the receipt of interest on the next interest payment date would be

Match each of the definitions that follow with the appropriate investment term.

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?

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

Journalize the entries to record the following selected transactions of Oliver Co.: (a) Purchased $\$ 100,000$ of Kruse Co. $8 \%$ bonds at par value plus accrued interest of $\$ 2,000$ . (b) Received first semiannual interest payment. (c) Sold the bonds at 97 plus accrued interest of $\$ 1,500$ .

The fair value method of accounting for stock

Journalize the entries to record the following selected bond investment transactions for Southwest Bank: (a) Purchased $\$ 400,000$ of Daytona Beach $5 \%$ bonds at 100 plus accrued interest of $\$ 4,500$ . (b) Received the first semiannual interest. (c) Sold $\$ 250,000$ of the bonds at 97 , plus accrued interest of $\$ 1,800$ .

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Held-to-maturity securities

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

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. ​ -Alan Company purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Alan later sold $250,000 of bonds at 97. The journal entry for the purchase would include a

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: ​ $\begin{array}{|l|c|r|r|}\hline\text { Name } & \text { Number of Shares } & \text { Total Cost } & \text { Total Fair Value } \\\hline \text { Blackstone, Inc. } & 400 & \$ 4,000 & \$ 5,200 \\\hline \text { Flagler Company } & 200 & 3,000 & 2,700 \\\hline \text { Patterson Corporation } & 600 & 7,500 & 9,800 \\\hline \text { Total } & & \$ 14,500 & \$ 17,700 \\\hline\end{array}$ ​ (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?

Trading securities should be reported on the financial statements at fair value.

The account Unrealized Loss on Trading Investments should be included on the

The primary objectives of investing in temporary investments is to

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