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Exam 15:Investments

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Question 31

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On October 1, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8 1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, the date of the last semiannual interest payments. Journalize the purchase.

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Question 32

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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

A) credit to cash for $9,000
B) debit to the investment account for $9,000
C) credit to the investment account for $9,000
D) credit to a loss account for $9,000

E) A) and C)
F) None of the above

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Question 33

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Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

When the fair value method is used to account for an investment, the carrying value of the investment is affected by

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

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its investment in Reyes Company under the equity method?

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

On January 1, the Valuation Allowance for Available-for-Sale Investments account had a zero balance. On December 31, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31.

On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest. Present entries to record the following transactions: Bee Company: (a) Purchase of bonds on August 1, Year 1. (b) Receipt of first semiannual interest amount on December 31, Year 1. (c) The sale of the bonds on March 1, Year 2.

Which of the following statements is not a reason a company may purchase another company's stock?

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

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.

In general, consolidated financial statements should be prepared

Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include a

Prepare the journal entries for the following transactions for Morgan Co. (a) Morgan Co. purchased 32,000 shares of the total of 100,000 outstanding shares of Gordon Corp. stock for $\$ 10$ per share plus a $\$ 400$ commission. (b) Gordon Corp.'s total earnings for the period are $\$ 80,000$ . (c) Gordon Corp paid a total of $\$ 45,000$ in cash dividends.

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton using the fair value method?

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

Temporary investments

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.