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Exam 13: Investments and Fair Value Accounting

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Question 71

Multiple Choice

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

A) earn interest revenue
B) influence the operations of another company
C) receive dividends
D) realize gains from the increase in market value of the securities

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

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Question 72

True/False

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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.

A) True
B) False

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Question 73

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Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.

Foreign currency translation adjustment is an example of an item that would be included in Other Comprehensive Income.

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 semi-annually. The journal entry to record the purchase would be:

Following is data for the available-for-sale securities held by AdBrand Company as of December 31, 2012. Required: (1) Complete the table above to find the total cost and fair value for the company's available-for-sale securities portfolio. (2) Calculate and record the required December 31, 2012 adjustment. (3) Explain how the adjustment from step (2) is reported on AdBrand's 2012 financial statements.

Which of the following stock investments should be accounted for using the cost method?

The journal entry Stanton will record on February 1, 2015, will include:

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Present entries to record the following selected transactions:

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97. The journal entry for the purchase would include: