Exam 14: Understanding Investments and Acquisitions in Accounting

In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.

The Fair Value Adjustment account is a balance sheet account. Identify the asset account it is related to. Explain how this account is increased and describe the procedure followed when its related asset account is disposed of.

Using the cost method of accounting for a stock investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next

Grafton Company had the following transactions pertaining to its short-term stock investments. Jan. 1 $\quad$ Purchased 2,000 shares of Hortez Company stock for $101,100 cash. June 1 $\quad$ Received cash dividends of $2.70 per share on the Hortez Company stock. Sept. 15 $\quad$ Sold 1,000 shares of the Hortez Company stock for $49,600. Dec. 31 $\quad$ The fair values of the securities were $50,800. Prepare the adjusting entry to report the portfolio at fair value. Instructions (a) Journalize the transactions. (b) Indicate the income statement effects of the transactions.

The following transactions were made by Aquavore Company. Assume all investments are temporary. July 1 $\quad$ Purchased 400 shares of Delta Corporation common stock for $35 per share. $\quad$ 30 $\quad$ Received a cash dividend of $1.25 per share from the Delta Corporation. Sept. 15 $\quad$ Sold 80 shares of Delta Corporation stock for $38 per share. Instructions Journalize the transactions.

Patterson Company is about to issue $8,000,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Patterson uses to calculate compounded interest. To the closest dollar, how much can Patterson expect to receive for the sale of these bonds?

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

The cost method of accounting for investments in stock should be used when the investment is

On January 1, 2014, Chic Corp. paid $1,200,000 for 100,000 shares of Toto Company's common stock, which represents 40% of Toto's outstanding common stock. Toto reported income of $300,000 and paid cash dividends of $80,000 during 2014 Chic should report the investment in Toto Company on its December 31, 2014, balance sheet at

To compute the present value of a bond, both the interest payments and the principal amount must be discounted using the bond's contractual interest rate.

In computing the present value of an annuity, it is necessary to know the _____________ rate and the _____________ of discount periods.

Sandafor Company had these transactions pertaining to stock investments: Feb 1 $\quad$ Purchased 2,400 shares of BFF common stock (2% of outstanding shares) for $16,500 cash. July 1 $\quad$ Received cash dividends of $0.80 per share on BFF common stock. Sept. 1 $\quad$ Sold 800 shares of BFF common stock for $7,900 Dec. 1 $\quad$ Received cash dividends of $.80per share on BFF common stock. Instructions Journalize the transactions.

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 adjusting entry on December 31, 2014, is