Exam 15: Investments

Washington Corp.held 1,500 of Vashon Company common stock with a cost of $74,387.It sold the shares on December 13 for $55,275.Prepare the journal entry to record Washington's sale.

________ are debt securities a company intends and is able to hold until the maturity date.

Barzetti had no investments prior to the current year.It had the following transactions involving available-for-sale and held-to-maturity securities during the year.The stock purchases are considered short-term,non-influential securities.Prepare Barzetti's journal entries to record the transactions and events associated with the investment purchases. Apr.18 Purchased 5,000 shares of Lacy Co.stock at $26.50 per share plus a $350 brokerage fee. May 01 Purchased $200,000 of Butcher's 7%,two-year bonds payable at par value.Interest payments are paid semiannually on November 1 and May 1.It is the company's intent to hold the bonds until maturity. Jun.10 Purchased 4,000 shares of SubCo stock at $48.25 plus a $325 brokerage fee. Nov.01 Received a check for the first semiannual interest payment on the Butcher's bonds. Nov.15 Received a $0.65 per share cash dividend on the Lacy Co.shares. Nov.30 Sold 2,000 shares of Lacy Co.stock at $29 less a $300 brokerage fee. Dec.15 Received a $1.10 per share cash dividend on the SubCo shares. Dec.20 Received a $.075 per share cash dividend on the remaining Lacy Co.shares. Dec.31 Prepare an adjusting entry to record the fair value adjustment on the equity securities.At December 31,the Lacy Co.stock has a fair value of $28 per share,and the SubCo stock has a fair value of $49.50 per share.

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

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported as a component of other comprehensive income.

When an investor owns less than 20% of another company's stock,it is presumed to have insignificant influence.

Debt securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

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 journal entry to record the purchase on September 15 is:

Unrealized gains and losses on trading securities are reported on the income statement.

J.P.Industries purchased Yang Corporation bonds with a par value of $143,000 for $143,375 as a long-term investment,which included $375 in brokerage fees.The investment is classified as available-for-sale securities.J.P.'s entry to record the purchase transaction would include a:

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

Draft Co.purchased 14,000 shares of Hamburg Corporation's 40,000 shares of common stock on January 1.This represented 35% of Hamburg's outstanding shares and gave Draft Co.significant influence over Hamburg's management and operations.On October 11,Hamburg declared and paid cash dividends of $30,000.On December 31,Hamburg reported net income of $125,000 for the year.Prepare the journal entries Draft Co.should record to account for the dividends received and the earnings reported by Hamburg Corporation.

All of the following are true for Available-for-sale equity securities except:

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The journal entry to record the dividend on April 15 is:

Landmark buys $300,000 of Schroeter Company's 8%,5-year bonds payable at par value on September 1.Interest payments are made semiannually on March 1 and September 1.The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Held-to-maturity securities are equity securities a company intends and is able to hold until maturity.

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1.On October 17 of the same year,Ferris Corporation declared total cash dividends of $12,000.At year-end,Ferris Corporation reported net income of $60,000.The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

The investee company in a long term investment with controlling interest is called the:

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

Investments in trading securities: