Exam 14: Understanding Investments and Acquisitions in Accounting

If $30,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

Which of the following discount rates will produce the smallest present value?

On January 1, 2014, JBT Company purchased at face value, a $1,000 6%, bond that pays interest on January 1 and July 1. JBT Company has a calendar year end. The entry for the receipt of interest on July 1, 2014, is

On January 1, Belvedere Company purchased as an investment a $1,000, 7% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

Cedar Co. purchased 120, 6% LKN Company bonds for $120,000 cash. Interest is payable semiannually on July 1 and January 1. If 60 of the securities are sold July 1 for $61,500 the entry would include a credit to Gain on Sale of Debt Investments of

Compound interest is computed on the_____________ and on any _______________ earned that has not been paid or withdrawn.

If the cost method is used to account for an investment in common stock

Ingles Company had the following transactions pertaining to debt securities held as an investment. Jan. 1 $\quad$ Purchased 60, 8%, $1,000 Omega Company bonds for $60,000 cash. Interest is payable semiannually on July 1 and January 1. July 1 $\quad$ Received $2,400 semiannual interest on Omega Company bonds. Instructions Journalize the purchase and the receipt of interest. Assume no interest has been accrued.

On January 1, 2014, Tri-State Supply Company purchased at face value, a $1,000 7%, bond that pays interest annually on January 1. Tri-State Company has a calendar year end. The adjusting entry on December 31, 2014, is

At the time of acquisition of a debt investment

The present value of a long-term note is based on the payment amounts, the length of time until the amounts are paid, and the discount rate.

Compound interest uses the accumulated balance-principal plus interest to date-at each year-end to compute interest in the succeeding year.

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary companies.

In computing the future value of an annuity, it is necessary to know the interest rate, the number of compounding periods, and the amount of the periodic payments or receipts.

The purchase of a company that is in the same industry, but involved in a different activity, is called a vertical acquisition.

Toub Company issued $4,000,000, 10-year bonds and agreed to make annual deposits of $303,500 to a fund. The deposits are made at the end of each year to a fund paying 6% interest compounded annually. What amount will be in the fund at the end of the 10 years?

Eaton Company had the following transactions pertaining to its short-term stock investments. Jan. 1 $\quad$ Purchased 900 shares of Stafford Company stock for $11,880 cash. June 1 $\quad$ Received cash dividends of $0.60 per share on the Stafford Company stock. Sept. 15 $\quad$ Sold 450 shares of the Stafford Company stock for $5,200. Dec. 1 $\quad$ Received cash dividends of $0.60 per share on the Stafford Company stock. Instructions (a) Journalize the transactions. (b) Indicate the income statement effects of the transactions.

Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.