Exam 8: Long-Term Investments and the Time Value of Money

Investments at fair value through other comprehensive income with a cost of $22,000 have a current market value of $22,600. The adjusting entry will require a:

Under the equity method of accounting, the investor will:

Under ASPE a reporting an organization can use either the effective interest rate method or straight line to account for the amortization of their bond investment.

What are consolidated financial statements? What are some of the benefits and limitations of them for ATCO Ltd.?

The receipt of a cash dividend arising from an investment (5% ownership) held by a company requires a:

When referring to foreign-currency transactions, hedging is a process in which:

Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting. The investment was made on January 1, 2014, at a cost of $625,000. Pipeline Corporation reported net income of $85,000 for the year ended December 31, 2014, and paid total dividends of $20,000 during 2014. On December 31, 2014, after making all appropriate entries, the balance in Barking Power Company's Long-Term Investment account will equal:

Goodwill arises when a parent company:

The equity method of accounting for a stock investment should generally be used when the investor owns 20%-50% of the investee's stock, because that level of stock ownership:

With an investment in a subsidiary, under Accounting Standards for Private Enterprise, the investment can be accounted for using consolidation, or the equity or cost method.

Investments with a cost of $12,000 have a current market value of $11,612. The adjusting entry will require a:

On January 1, 2014, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2014 and 2015 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2014 and 2015 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2014, balance sheet at:

A non controlling interest will appear on the consolidated balance sheet when the parent company owns more than 40% but less than 100% of the subsidiary's stock.

The adjusting entry for investments at fair value through other comprehensive income contains a credit to Investments for $651. The income statement will reflect:

On April 1, 2014, Transportation Imbalance Company (TIC) purchased $5,000 of 6% bonds as a long-term investment to be held to maturity. TIC is a private corporation that elects to report its financial results in accordance with ASPE. Its year end is December 31 an Interest dates are April 1 and October 1. The bonds mature 36 months from the purchase date. The purchase price of the bonds was $5,120, and the premium is amortized on the straight-line basis. Assume the proper adjusting entry was made on December 31, 2014, to record accrued interest receivable and amortization of the premium. The total interest revenue recorded by Transportation Imbalance Company on April 1, 2015 will be:

On January 1, 2014, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2014 and 2015 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2014 and 2015 were, respectively, $60,000 and $75,000. Assume on December 31, 2015, TXU Europe Corporation sells 50% of its investment in Alberta Power Pool Corporation for $525,000. TXU Europe Corporation will report a:

Amortization of a discount or premium on the bond affects all of the following except:

On January 1, 2013 Blue Cat Corporation purchased 1,000 shares (5%) of Mike Mouse Co. for $10,000 as a long term investment. On March 31, 2014 Mike Mouse pays Blue Cat a $5,000 dividend. At year end December 31, 2014 Mike Mouse shares are trading at $12 per share. Blue Cat then sells their investment in Mike Mouse Co for $11,500 on February 4, 2015. Prepare Blue Cat's journal entries for 2013, 2014 and 2015.

The Gain/Loss on Investment account may appear on which financial statement?

When the equity method is used to account for a stock investment, dividends received are recorded as a reduction to the Investment account and the investor's share of income reported by the investee is treated as an increase in the Investment account. Explain why the investment is accounted for in this fashion.