Exam 15: Investments

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment.The company intends to hold the bonds to maturity.The correct entry to record the purchase of the bond investment is:

Investments in trading securities are always classified as ________ and are reported as ________ on the balance sheet.

A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n):

Long-term investments are usually held as an investment of cash for use in current operations.

Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1.On June 20 of the same year,Jay Corporation declared total cash dividends of $30,000.At year-end,Jay Corporation reported net income of $150,000.The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

All of the following statements regarding debt securities are true except:

Long-term investments in held-to-maturity debt securities are accounted for using the ________.

Short-term investments in held-to-maturity debt securities are accounted for using the:

Land used in the company's operations is reported as a long-term investment.

On January 2,Froxel Company purchased 10,000 shares of Sandia Corp.common stock at $19 per share plus a $3,000 commission.This represents 30% of Sandia Corp.'s outstanding stock.On August 6,Sandia Corp.declared and paid cash dividends of $1.75 per share,and on December 31 it reported net income of $150,000.Prepare the necessary entries for Froxel to account for these transactions and events.

On September 15,Nolan Company purchases 2,000 shares of Francis Company common stock for $30,000,including $500 of commissions and brokerage fees.This is Nolan's first and only purchase of this type of investment.On November 1,Nolan sold 500 shares of the Francis Company stock for $8,200.On December 31,the fair value of Francis Company common stock was $16 per share.The adjusting entry to record the fair value of the investments on December 31 is:

Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed.The year-end cost and fair values for its portfolio follow.Beginning with Year 1,prepare the appropriate journal entry to record each year-end market adjustment for these securities. Fair Available-for-Sale Securities Cost Value Year 1 \ 404,000 \ 410,000 Year 2 406,000 414,000 Year 3 461,000 472,000

A controlling investor is called the parent,and the investee is called the subsidiary.

On May 15,Tumbleweed,Inc.purchased Dansell Corp.bonds for $80,000.The securities are considered available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On September 30,the bonds had a market value of $85,000.The $5,000 difference must be reported on Tumbleweed's income statement as a $5,000 gain.

When an investor has insignificant influence over another company's stock,presumably when it owns more than 20%,the stock investment is reported at fair value.

Dividends received from stock investments with insignificant influence are recorded as dividend revenue.

McVeigh Corp.owns 40% of Gondor Company's common stock.McVeigh received $41,200 in cash dividends from Gondor.The entry to record this transaction should include a:

On January 1,Jewel Company buys $200,000 of Marcelo Corp.12%,36-month notes.Interest is paid on the last day of each month.The notes are classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On December 31,the notes have a fair value of $204,000.The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp.is:

On October 31,Augustas Co.received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock.Augustas owned 1,200 shares of Lamb Corp.'s stock on October 31.The investment is considered non-influential.Prepare the investor's journal entry to record the receipt of the cash dividends.