Exam 15: Investments

On March 15,Alan Company purchased 10,000 shares of Cameo Corp.stock for $35,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On June 30,the stock had a fair value of $34,000.Alan should do which of the following:

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

The currency in which a company presents its financial statements is known as the:

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

On April 1 of the current year,a company paid $150,000 cash to purchase 7%,10-year bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1.The company intends to hold these bonds until they mature.Prepare the journal entries to record the bond purchase,the receipt of the first semiannual interest payment on October 1 of the current year,and the accrual of interest for the year-end December 31.

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

Investments in held-to-maturity debt securities are always current assets.

On May 15,Tumbleweed,Inc.purchased 10,000 shares of Dansell Corp.for $80,000.The securities are considered available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On September 30,the stock had a market value of $85,000.The $5,000 difference must be reported on Tumbleweed's income statement as a $5,000 gain.

Trading securities are always reported as current assets.

Barzetti had no investments prior to the current year.It had the following transactions involving available-for-sale and held-to-maturity securities during the year.The stock purchases are considered short-term available-for-sale securities.Prepare Barzetti's journal entries to record the transactions and events associated with the investment purchases.

Match the following terms with the appropriate definitions. -Debt securities that a company intends and is able to hold until maturity.

A company holds $40,000 of 7% bonds as a held-to-maturity security.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Match the following terms with the appropriate definitions. -Change in market value that is not yet realized through an actual sale.

A company that is a controlling investor in another company is known as the ________.

Long-term investments:

The investee company in a long term investment with controlling interest is called the:

Long-term investments in held-to-maturity debt securities are accounted for using the ________.

Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed.The year-end cost and fair values for its portfolio follow.Beginning with Year 1,prepare the appropriate journal entry to record each year-end market adjustment for these securities. Available-for-Sale Securities Cost Fair Value Year 1 \ 404,500 \ 389,900 Year 2 406,400 412,600 Year 3 454,800 472,000

Comprehensive income includes all except:

Long-term investments in available-for-sale securities are reported at their ________ on the balance sheet.