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Exam 15: Investments and Fair Value Accounting

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Question 31

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Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for 2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

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Question 32

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Comprehensive income does not affect net income or retained earnings.

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Question 33

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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 for the sale would include:

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

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

Herberto Company had a net income of $74,000, and other comprehensive loss of $8,500 for 2012. On January 1, 2012, the Retained Earnings balance was $425,000 and the Accumulated Other Comprehensive Income balance was $52,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

The account Valuation Allowance for Trading Securities is found on the:

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

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on February 1, 2015, will include:

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

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

Match each of the following definitions with their investment term.

Present entries to record the following selected transactions of Masterson Co.

Temporary investments

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' 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.

The cumulative effects of other comprehensive income items is included in retained earnings, on the balance sheet.

The company whose more than 50% stock is owned by the another company is called the