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Exam 13: Investments

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Question 1

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Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Method of accounting for all investments in debt securities that are classified as held-to-maturity securities

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Question 2

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Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a business combination.

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Question 3

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Select the correct statement from the following:

Tidewater Management, Inc. had no investments in short-term marketable securities prior to 2013. During 2013, the company engaged in the following investment transactions: At the end of 2013, the Toucan Taxi stock had a market value of $15 per share.

What are the effects on the accounting equation from the recognition of an unrealized loss on trading securities?

The excess of acquisition cost over the current value of the investee's identifiable net assets, referred to as goodwill, may not be recorded by the investor under current generally accepted accounting principles.

The practice of adjusting the market value of securities that are accounted for using the fair value method is referred to as

If the investor holds 50% or more of the investee's outstanding common stock, then the investor is referred to as the parent and the investee is called the subsidiary.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Result when the value of securities must be written up or down to fair market value at the balance sheet date, a process referred to as "marking to market"

If the investor holds 50% or more of the common stock of the investee, then the investor is referred to as the ____________________ and the investee is referred to as the ____________________.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Equity or debt investments that management intends to sell in the near term, typically within a single month

Held-to-maturity securities are equity and debt investments that management intends to sell in the future, but not necessarily in the near term.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Name given to an investor who owns over 50% of the outstanding common stock of the investee

Business combinations can occur through either an asset or ____________________ acquisition.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Represents an ownership interest in a corporation, usually common stock

On January 1, 2011, P Company purchased all of the outstanding common stock of S Company. Which of the following represents the worksheet entry needed to consolidate the balance sheets of the two companies?

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Method of accounting for investments where the investor possesses significant influence (20% to 50% common stock ownership)over the operating and financial policies of the investee

A debt security exists when another entity owes the security holder some combination of interest and principal.

Match the following terms to their correct definition: a.equity security j.held-to-maturity securities b.debt security k.amortized cost method c.passive l.fair value method d.significant influence m.unrealized gains and losses e.control n.equity method f.parent o.consolidation worksheet g.subsidiary p.minority interest h.trading securities q.business combination i.available-for-sale securities r.goodwill -Name given to the investee when an investor owns over 50% of the investee's outstanding common stock

If the investor holds 50% or more of the common stock of the investee, then the two corporations are no longer separate accounting entities and therefore must prepare ____________________ financial statements, which combine information about the two corporations as if they were a single company.