Exam 14: Time Value of Money

On January 1, 2014, Tri-State 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 entry for the receipt of interest on January 1, 2015 is

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Gulf Coast Corporation makes an investment in 100 shares of Eta Company's common stock. The stock is purchased for $52 a share. The entry for the purchase is

Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti pays $60,000 in dividends to Bing, and reports $320,000 in net income. Bing Company's investment in Yeti l will increase Bing net income by

The amount you must deposit now in your savings account paying 6% interest, in order to accumulate $2,000 for a down payment 5 years from now on a new Vintage Convertible Mustang is

When the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account.

enny 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?

Porter Company has just purchased equipment that requires annual payments of $22,500 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?

Glover Company is about to issue $3,000,000 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 Glover expect to receive from the sale of these bonds?

If a stock investment is sold at a gain, the gain

Wiggins Company is considering purchasing equipment. The equipment will produce the following cash flows: Year 1, $50,000; Year 2, $90,000; Year 3, $130,000. Below is some of the time value of money information that Wiggins has compiled that might help them in their planning and compounded interest decisions. Wiggins requires a minimum rate of return of 11%. To the closest dollar, what is the maximum price Wiggins should pay for the equipment?

A consolidated balance sheet reports the financial position of two or more legal entities just as if they were one reporting unit. Explain why all the individual items appearing on the separate balance sheets of each of the affiliated companies cannot be added together to arrive at a consolidated total for each item.

Dividends received on investments are accounted for in the same way under the cost and the equity method.

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash. June 1 Received cash dividends of $1 per share on Raley stock. Oct) 1 Sold 1,000 shares of Raley stock for $19,500. Dec) 1 Received cash dividends of $2 per share on Raley stock. The entry to record the receipt of the dividends June 1 would include a

Eaton Company had the following transactions pertaining to its short-term stock investments. Jan. 1 Purchased 900 shares of Stafford Company stock for $11,880 cash. June 1 Received cash dividends of $0.60 per share on the Stafford Company stock. Sept. 15 Sold 450 shares of the Stafford Company stock for $5,200. Dec. 1 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.

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 June 30, 2014, is

Trading securities are reported on the balance sheet at

A $30,000, 8%, 10-year note payable that pays interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period-interest combinations?

A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.

The future value of a single amount is the value at a future date of a given amount invested assuming compound interest.