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Exam 15: Investments

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Question 31

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On January 1, 2010, the Wender Company acquired 12% bonds with a face value of $250, 000 and classified as held to maturity.The bonds pay interest on June 30 and December 31, and mature on December 31, 2019. Required:

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2 Previous carrying value...

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Question 32

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Each of the three categories of investments in debt and equity securities has similar accounting for all of the following transactions except

A) initial recording of cost
B) recognition of dividend and interest income
C) recognition of realized gains or losses on sales
D) recognition of unrealized holding gains and losses

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Question 33

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On January 1, 2010, A Corp.had the following investments: During the year, A Corp.acquired for trading M Co.stock for $1, 000.At year-end, the stock has a fair market value of $1, 200.The K Inc.investment was transferred from AFS to trading on December 31 when the fair market value was $2, 500.The S Co.investment had a December 31 market value of $3, 500.The G Inc.bonds had a fair market value on December 31 of $9, 850. Required: What disclosures are required in the December 31, 2010 financial statements for investments?

Exhibit 15-1 On January 1, 2010, Circle Corporation paid $900, 000 for 80, 000 shares of Birch Company's common stock, which represents 40% of Birch's outstanding common stock.Birch reported income of $300, 000 and paid a cash dividend of $100, 000 during 2010. - Refer to Exhibit 15-1.Circle should report the investment in Birch Company on its December 31, 2010, balance sheet at

On July 1, 2010, Iris Company purchased 800 bonds having $1, 000 face value and an 8% interest rate.Interest is paid on June 30 and December 31.The purchase price was 97.The bonds are classified by Iris as available for sale.The market value of the bonds on December 31, 2010, was $789, 000.Ignoring amortization, the income statement for the year ended December 31, 2010, would report income (loss) related to this investment in the amount of

With consolidation, control generally occurs when the investor owns what percentage of the voting stock of the investee?

Under the equity method, dividends received by the investor should be recorded as

In its first year of operations, Rodolfo Company purchased available-for-sale securities at a total cost of $53, 000.On December 31, the end of Rodolfo's fiscal year, the fair market value of those investments totaled $57, 000.As a result of these investments, Rodolfo Company will report

Park has life insurance policies on its officers' lives.Annual premiums amount to $5, 000.At the end of 2010, cash surrender value of the policies totaled $18, 200.Dividends received by Park from the insurance company amounted to $500 in 2010.The insurance expense recognized by Park in 2010 was $3, 500.What was the amount of cash surrender value of these policies on January 1, 2010?

Investment securities are classified based upon management's intent.This may present difficulties to readers of financial statements because

The Rolla Company purchased 10%, $800, 000 bonds of the Batter Up Company at par plus accrued interest on April 1, 2010, as an investment in available-for-sale securities.The bonds pay interest on June 30 and December 31 each year.The entry by Rolla on April 1, 2010, would include a

A marketable security is initially classified as a trading security, an available-for-sale security, or a held-to-maturity debt security.Subsequently, a security can be transferred among categories. Required: Explain the accounting for a related unrealized holding gain or loss when a transfer to another category occurs.

Which of the following disclosures is not required for investments in securities by current GAAP?

Unrealized holding gains and losses on debt securities affect net income when the securities are classified as $\begin{array}{llll}& \text { Trading}& \text { Available-for-Sale}& \text { Held-to-Maturity}\\\text { I. } & \text { Yes } & \text { No } & \text { No } \\\text { II. } & \text { Yes } & \text { Yes } & \text { No } \\\text { III. } & \text { No } & \text { Yes } & \text { Yes } \\\text { IV } & \text { No } & \text { No } & \text { Yes }\end{array}$

Which of the following categories of investments are reported at their fair values on the balance sheet and have unrealized holding gains and losses included as a separate component of stockholders' equity?

On October 1, 2010, the Stu Company acquired 8% bonds of Jackson Company with a face value of $300, 000 for $312, 000 plus accrued interest.Interest is payable on June 30 and December 31.How would Stu record the initial bond investment to be held to maturity?

A transfer of a security between categories is accounted for at the

On July 1, 2010, Mark Company purchased Robert Company's six-year 9% bonds with a face value of $200, 000 for $196, 000, which included $6, 000 of accrued interest.The bonds, which mature on March 1, 2016, are to be held to maturity and pay interest semiannually on March 1 and September 1.Mark uses the straight-line method of amortization.The amount of income Mark should report for the calendar year 2010 as a result of this investment would be

On May 1, 2010, Edsel, Inc.bought 300 of DeSoto, Inc.'s $1, 000, 10% bonds that pay interest on January 1 and July 1.They were bought at 101 plus accrued interest.On December 1, 2010, 60 of the bonds were sold at 106.Edsel classified the bonds as securities available for sale. Required: Journalize the sale on December 1, 2010.

On January 1, 2010, Buster, Inc.bought $50, 000 of 10% ten-year bonds of Brown Co.for $56, 795 to yield 8% annually.The bonds pay interest semiannually and are classified as held to maturity.Interest is paid on June 30 and December 31. Required: Using the effective interest method, journalize the receipt of the interest and amortization at December 31, 2010.