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Exam 15: Investments and Fair Value Accounting

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Question 51

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On June 1, $40,000 of treasury bonds were purchased between interest dates. The brokerage 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?

A) $400
B) $406
C) $2,000
D) $2,400

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

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Question 52

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Prepare the journal entries for the following transactions for Morgan Co.July 1Morgan 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.Dec. 31Gordon Corp.'s total earnings for the period are $80,000.31Gordon Corp. paid a total of $45,000 in cash dividends.​

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Question 53

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Any gains or losses on the sale of bonds normally would be reported in the Other income (loss) section of the income statement.

Match each of the definitions that follow with the appropriate investment term (a-j) . -A corporation controlled by another corporation that owns all or the majority of its voting stock

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

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

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

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

On October 1, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8½ years. The bonds were purchased at their face amount plus interest of $400 accrued from July 1, the date of the last semiannual interest payments. Journalize the purchase.

Match each of the definitions that follow with the appropriate investment term (a-j) . -The market price that would be received if an investment were sold

On April 1, ValueTime, Inc. had a market price per common share of $24. For the previous year, ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.

During the first year of operations, Makala Company purchased two available-for-sale investments as follows:​​ Assume that as of December 31, Oceanna Company's stock had a market value of $49 per share and Rockledge, Inc.'s stock had a market value of $20 per share. Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, Makala had a net income of $105,000. No dividends were paid.​ (a)Prepare the Current assets section of the balance sheet for the available-for sale securities as of December 31. (b)Prepare the Stockholders' equity section of the balance sheet as of December 31.​

Discuss the similarities and differences in reporting trading securities, available-for-sale securities, and held-to-maturity securities.

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

Growth firms generally pay regular dividends to stockholders.

The cumulative effects of other comprehensive income items may be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated 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 semiannually. The journal entry to record the receipt of interest on the next interest payment date would be

Journalize the entries to record the following selected bond investment transactions for Southwest Bank:Apr. 1Purchased $400,000 of Daytona Beach 4.5% bonds at 100 plus accrued interest of $4,500.July 1Received the first semiannual interest.Sept. 1Sold $250,000 of the bonds at 97, plus accrued interest of $1,875.

Match each of the definitions that follow with the appropriate investment term (a-j) . -Notes and bonds that pay interest and have a fixed maturity