Exam 14: Understanding Investments and Acquisitions in Accounting

If the fair value of an available-for-sale security exceeds its cost, the security should be written up to fair value and a realized gain should be recognized.

If $22,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

If you are able to earn a 15% rate of return, what amount would you need to invest to have $6,500 one year from now?

PWAT Inc. had these transactions pertaining to investments in common stock: Jan 1 $\quad$ Purchased 2,000 shares of Pasco Corporation common stock (5% of outstanding shares) for $96,500 cash. July 1 $\quad$ Received a cash dividend of $1.70 per share. Dec. 1 $\quad$ Sold 800 shares of Pasco Corporation common stock for $40,200. $\quad$ 31 $\quad$ Received a cash dividend of $1.70 per share. Instructions Journalize the transactions.

A company that owns more than 50% of the common stock of another company is known as the

Kenny Corsig purchased an investment for $9,818.15. From this investment, he will receive $1,000 annually for the next 20 years starting one year from now. What rate of interest will Kenny be earning on his investment?

King Corporation purchased 1,000 shares of Cable common stock ($50 par) at $73 per share as a short-term investment. The shares were subsequently sold at $77 per share. The cost of the securities purchased and gain or loss on the sale were

Debt investments are investments in government and corporation bonds.

The balance in the Unrealized Loss-Equity account will

Travis Tucker invests $10,655.04 now for a series of $1,500 annual returns beginning one year from now. Travis will earn 10% on the initial investment. How many annual payments will Travis receive?

The Fair Value Adjustment account

If the cost method is used to account for an investment in common stock, dividends received should be

The process of determining the present value is referred to as discounting the future amount.

Chopper Company owns 10% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by

Winek Company deposited $12,500 annually for 6 years in an account paying 5% interest compounded annually. What is the balance of the account at the end of the 6th year?

If a debt investment is sold, the investment account is

Rhode Company is about to issue $4,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Rhode expect to receive from the sale of these bonds?

Ashland Corporation sells 100 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Ashl and Keller sold the shares for $38 a share. The entry to record the sale is

The future value of 1 factor will always be

In computing the present value of an annuity, it is necessary to know only the discount rate and the amount of the periodic receipts or payments.