Exam 29: Investments

Interest revenue on bonds is reported

Skyline, Inc. purchased a portfolio of trading securities during the current fiscal year. The cost and fair value of this portfolio on December 31 was as follows: (a) Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31.(b) Where will the information from the journal entry be reported on the financial statements?

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its investment in Reyes Company under the equity method?

Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31 before considering the following: $\bullet$ During the year the company purchased trading securities. $\bullet$ At year end, the fair value of the investment portfolio was $23,000 less than cost. $\bullet$ The balance of Retained Earnings was $823,000 on January 1. $\bullet$ Hudson Company paid $43,000 in cash dividends during the year.Calculate the balance of Retained Earnings on December 31.

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

Match each of the definitions that follow with the appropriate investment term (a-j). -debt investments that a company intends to keep until their maturity date A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

Prepare the journal entries for the following transactions for Morgan Co.(a)Morgan Co. purchased 32,000 shares of the total of 100,000 outstanding shares of Gordon Corp. stock for $10 per share plus a $400 commission.(b)Gordon Corp.'s total earnings for the period are $80,000.(c)Gordon Corp. paid a total of $45,000 in cash dividends.

Held-to-maturity securities

On January 1, the Valuation Allowance for Available-for-Sale Investments account had a zero balance. On December 31, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31.

On March 1, Year 1, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for $325,000. On December 31, Year 1, Glory reports net income of $162,000. On January 15, Year 2, Glory pays total dividends to stockholders of $33,000.Journalize the three transactions.

Match each of the definitions that follow with the appropriate investment term (a-j). -when using this, dividends are treated as a reduction of the investment A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the purchase would be

Changes in the value of available-for-sale securities

If the proceeds from the sale of bond investments exceed the balance of the investment amount, a gain is realized.

Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.

Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -a corporation owning all or the majority of the voting stock of another corporation

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is purchased for $45 a share plus brokerage fees of $280. The entry for the purchase is