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Exam 12: Investments

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Question 81

Multiple Choice

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Which is the only type of investment that is always classified as short-term?

A) Trading securities
B) Held-to-maturity securities
C) Available-for-sale securities
D) Equity securities

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Question 82

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Ming Company purchased 100 percent of Savran Company for $94,000.Of the excess of cost over book value,$15,000 was attributed to Savran's undervalued plant and equipment.The rest was attributed to the general strength of the company.Complete the following work sheet by providing the figures for the Eliminations columns and the Consolidated Balance Sheet column.

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Question 83

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Which of the following is a true statement regarding elimination entries necessary for the preparation of consolidated financial statements?

For available-for-sale equity securities,the Unrealized Loss on Long-Term Investments account should be reported as a(n)

The account Allowance to Adjust Short-Term Investments to Market appears as a contra account on the income statement.

Distinguish between the financial statement presentation of unrealized gains and losses related to trading securities and the financial statement presentation of unrealized gains and losses related to available-for-sale securities.

When a subsidiary has borrowed cash from the parent company,the related receivable and payable are eliminated in preparing a consolidated balance sheet so that

The following transactions and information pertain to Langston Corporation for 20xx.Prepare entries in journal form,without explanations,to record these transactions. $\begin{array}{lrl}\text { May } & \text { 1. } & \begin{array}{l}\text { Purchased 1,000 shares of Granger Corporation's common stock at } \$ 180 \text { per } \\\text { share (representing } 5 \text { percent of Granger's total outstanding stock) as a } \\\text { long-term investment. }\end{array} \\\text { Sept. } & \text { 1 } & \text { Received a cash dividend of } \$ 6.00 \text { per share from Granger. } \\\text { Dec. } & 31 & \text { End of Langston's accounting year. Granger's market price per share is } \$ 168 \text {. }\end{array}$

On January 1,Chapin Corporation purchased,as long-term investments,10 percent of the voting stock of Paxton Corporation for $75,000 and 25 percent of the voting stock of Colb Corporation for $150,000.During the year,Paxton Corporation had earnings of $40,000 and paid dividends of $15,000 on October 15,and Colb Corporation had earnings of $20,000 and paid dividends of $12,000 on November 10.The market value of neither investment declined nor rose during the year.Prepare journal entries without explanations to record this information as appropriate in Chapin Corporation's general journal.

For available-for-sale securities,the Unrealized Loss on Long-Term Investments account appears on the income statement.

Unless there is evidence to the contrary,an investor owning 25 percent of the stock of an investee is assumed to have significant influence.

Wyfker Company and Mularkey Company have separate incomes of $38,500 and $42,500,respectively.They had intercompany purchases and sales of $15,000 and intercompany interest of $1,500.Consolidated net income would be

Significant influence is defined as owning what percent of the stock of another company?

The elimination of the investment in the subsidiary company is made against the liabilities,capital stock,and retained earnings of the subsidiary company.

Platek Company buys 100 percent of the stock of Brendel Company for $180,000.Brendel Company has contributed capital of $105,000 and retained earnings of $75,000.The consolidated financial statements would contain

An eliminating entry is required when a subsidiary owes a parent company but not when the parent owes the subsidiary.

It is possible that an investor with less than a 50 percent ownership interest may qualify for accounting recognition of control and appropriately prepare consolidated financial statements.

Most long-term bond investments are classified as held-to-maturity securities.

Which of the following statements is true about investments categorized as trading securities?

On January 1,2010,Remco Corporation purchased 5,000 shares of Lowell Corporation common stock for $60 per share.Remco's investment represents 30 percent of the total outstanding shares of Lowell.During 2010,Lowell paid total dividends of $100,000.Remco appropriately used the equity method to account for this investment and accordingly reported the investment at a carrying value of $390,000 on December 31,2010.Compute the amount of earnings reported by Lowell Corporation for 2010.