Exam 14: Time Value of Money

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

A higher discount rate produces a higher present value.

Le Tourneau Company had the following transactions pertaining to debt securities held as a I short - term investment. Jan. 1 Purchased 90, 6%, $1,000 Lido Company bonds for $90,000 cash. Interest is payable semiannually on July 1 and January 1. July 1 Received semiannual interest on Lido Company bonds. Oct. 1 Sold 45 Lido Company bonds for $46,400 plus accrued interest. Instructions (a) Journalize the transactions. (b) Prepare the adjusting entry for the accrual of interest on December 31.

If a company has a stock investment that is properly accounted for by the equity method, what will be the effect on the financial statements when they receive a dividend from its investee?

Ken Corsig invested $20,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Ken withdrew the accumulated amount of money. What amount did Ken withdraw, assuming the investment earns simple interest?

The Fair Value Adjustment account can only have a credit balance or a zero balance.

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

auls Company is considering an investment that will return a lump sum of $1,250,000 six years from now. What amount should Sauls Company pay for this investment to earn a 12% return?

ando Company is considering investing in an annuity contract that will return $55,000 annually at the end of each year for 20 years. What amount should Wando Company pay for this investment if it earns a 6% return?

Deutsche Corporation's trading portfolio at the end of the year is as follows: Deutsche subsequently sells Common Stock B for $17,000. What entry is made to record the sale?

If a bond has a contract rate of 10% and is discounted at 10%, then the proceeds received at issuance will be

weetsie Railroad Co. is about to issue $800,000 of 10-year bonds paying a 9% interest rate, with interest payable semianually. The discount rate for such securities is 10%. How much can Tweetsie expect to receive for the sale of these bonds?

If $13,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compound annually, what will be the balance of the account at the end of 10 years?

At December 31, 2014, Grey beard Inc. has these data on its security investments If the available-for-sale securities are held as long-term investments, which of the following will be recorded to adjust the securities to fair value?

Which is not a strategic reason to invest?

Which of the following is not a true statement about the accounting for long-term debt investments?

Which of the following is a debt security?

Unless there is evidence to the contrary, an investor owning 25% of the stock of an investee is assumed to have significant influence.

If the cost method is used to account for an investment in stock, the Stock Investments account is increased by the amount of dividends received during the period.