Exam 15: Investments

In its first year of operations,Logic Co.purchased bonds of Waterford Co.with a cost of $125,000 and a year-end fair value of $123,700.Logic also purchased bonds of Jasper Co.with a cost of $25,000 and a year-end fair value of $26,100.These are classified as long-term available-for-sale securities.Prepare the journal entry to record the market value of the investments as of its December 31 year-end.

What is comprehensive income and how is it usually reported in the financial statements?

When an investor company owns more than 25% of the voting stock of an investee company,it has a controlling influence.

A company holds $40,000 of 7% bonds as a held-to-maturity security.The bonds were purchased at par value.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Kendall Corp.purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.When the bonds mature,Kendall should prepare the following journal entry:

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

Scotsland Company had the following transactions relating to investments in non-influential equity securities during the year.Prepare the required general journal entries for these transactions. May 4 Scotsland purchased 600 shares of Lobe Company stock at $120 per share plus a $750 brokerage fee. July 1 Scotsland received a $2.50 per share cash dividend on the Lobe Company stock. Sept.15 Sold 300 shares of Lobe Company stock for $125 per share,less a $450 brokerage fee. Dec.31 The fair value of the Lobe Company stock (the only investment that Scotsland owns)is $124 per share.The balance of the Fair value Adjustment-Stock account had a zero balance prior to adjustment.

Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

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 impact on Jewel's net income as a result of its investment in Marcelo Corp.was a(n):

Debt securities are recorded at cost when purchased.

Trading securities are:

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry to record the receipt of the first semiannual interest payment on November 1.

Return on total assets is computed by dividing ________ by ________.

Trading securities are always reported as current assets.

Roe Corporation owns 2,000 shares of WRJ Corporation stock.WRJ Corporation has 25,000 shares of stock outstanding.WRJ paid $4 per share in cash dividends to its stockholders.The entry to record the receipt of these dividends by Roe is:

A controlling influence over the investee is based on the investor owning voting stock exceeding:

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

Six months ago,a company purchased an investment in debt for $70,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.The current fair value of the debt is $68,500.The company should record a:

Hubbard Company had the following trading securities in its portfolio at December 31.The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment.Prepare the appropriate adjusting journal entry.

All of the following statements regarding accounting for noninfluential securities under U.S.GAAP and IFRS are true except: