Exam 14: Reporting and Interpreting Investments in Other Corporations

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: -If the fair value and book value are the same for Mini's remaining assets and liabilities,what was the amount of goodwill acquired by Maxi Company?

When an investment accounted for under the equity method is sold,the gain or loss reported on the income statement is the difference between the selling price and the original cost of the investment.

On the date that one company acquires 100% of the voting stock of another company,the book value of the acquired assets and liabilities will be combined with book values of the assets and liabilities of the acquiring company.

Management must have the intent and ability to hold a bond investment until maturity if it is to be classified as a held-to-maturity security.

On July 1,2019,Carter Company purchased equity securities as follows: Dark Corporation common stock (par $1)10,000 shares at $25 per share. Janin Corporation preferred stock (par $100)2,000 shares at $105 per share. The quoted market prices per share on December 31,2019 were as follows: Dark Corporation stock,$27 per share Janin Corporation stock,$104 per share Each of the investments represented 5% of the total shares outstanding.The carrying value amount of the investments at December 31,2019 should be

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock,which constitutes 10% of Martin's voting stock on June 30,2019 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2019,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and Martin reported 2019 net income of $52 million. - What method of accounting will Phillips use to account for this investment?

Describe the difference in accounting for debt investments classified as available-for-sale versus the accounting for equity securities.

When is the equity method used to account for long-term investments in common stock?

An investment accounted for under the equity method is reported on the balance sheet at fair value.

Copper Company purchased 40% of the common stock of York Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of York Corporation showed the following on December 31,2019: How much investment income should Copper report from the York investment during 2019?

Subsequent to a merger,the assets and liabilities of the acquired company will continue to be accounted for within the acquired company's books.

Complete the following matrix by writing a brief explanation in each cell to indicate the appropriate approach for long-term investments.

Rye Company purchased 15% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020.Lena Company declared and paid dividends of $36,000 in 2019 and $38,000 in 2020.What is the total amount reported on Rye's income statement for the year ended December 31,2020 related to the Lena investment?

On January 1,2019,Red Company purchased Patriot Shop for $400,000 cash in a merger transaction.Red Company received the assets listed below and assumed accounts payable owed by Patriot to its suppliers in the amount of $30,000. What amount of goodwill will be recorded in the transaction?

Which of the following is the best description of investments in trading securities?

On January 2,2018,Surfside Co.purchased 12,000 shares of Sand,Inc.for $240,000.The investment represented 12% of Sand's outstanding shares.On December 31,2018 each share of Sand was selling for $19 per share and on December 31,2019 each share of Sand was selling for $23 per share. -Which of the following correctly presents the entries made by Surfside to its investment account for this investment?

Ocean Corporation owns 30% of Woods Corp.for which it paid $5.5 million and uses the equity method to account for the investment.Woods Corp.paid stockholders a $100,000 dividend.Therefore,the Investment in Woods Corp.account will decrease by Ocean's $30,000 proportionate share of the Woods.Corp.dividend.

The accounting for passive investments in equity securities is similar to the accounting for trading debt securities.

On January 2,2018,Surfside Co.purchased 12,000 shares of Sand,Inc.for $240,000.The investment represented 12% of Sand's outstanding shares.On December 31,2018 each share of Sand was selling for $19 per share and on December 31,2019 each share of Sand was selling for $23 per share -.Sand declared and paid dividends totaling $20,000 in 2018 and 2019.What was the total amount reported on the income statement in 2019 by Surfside for its investment in Sand?

Which of the following does not properly describe reasons for a retailer of pianos having 30 stores to acquire control of another retailer of pianos having 12 stores?