Exam 28: Accounting for Investments

Under the equity method of accounting for a stock investment,a proportionate share of the investee's income is recorded on the investor's records.

Trading securities are valued on the balance sheet at market value.

When a company holds U.S.Treasury bills,it debits Interest Income and credits Short-Term Investments at the end of the accounting period (assuming it is prior to the T-bills' maturity).

Kirk Corporation owns 25 percent of the voting stock of Allen Corporation and accounts for the investment using the equity method.Allen reports a net loss of $40,000.Kirk Corporation's entry to record its share of loss is:

Available-for-sale securities may only be classified as short-term investments.

Unrealized gains and losses on trading securities appear on the income statement.

Gains and losses on the sale of investments appear as adjustments within the financing activities section of the statement of cash flows.

Which is the only type of investment that is always classified as short-term?

Trading securities are always short-term investments.

Winters Corporation purchased 15,000 shares of Poores Corporation common stock for $60 per share on January 2,2014.Poores Corporation reported net income of $1,500,000 for 2014 and paid dividends of $300,000 during 2014.Poores has a total of 50,000 shares of common stock outstanding. -Winters Corporation purchased 15,000 shares of Poores Corporation common stock for $60 per share on January 2,2014.Poores Corporation reported net income of $1,500,000 for 2014 and paid dividends of $300,000 during 2014.Poores has a total of 50,000 shares of common stock outstanding.The entry that would be recorded to recognize the receipt of cash dividend is:

Which type of investment,if any,could be classified as short- or long-term,as well as debt or equity?

Garcia Corporation purchased 22,000 shares of Lee Corporation common stock for $80 per share on January 1,2014.Lee reported net income of $140,000 for 2014 and paid dividends of $90,000 during 2014.As of December 31,2014,the market value of Lee Corporation common stock was $78 per share.Assuming the shares owned by Orlov represent 10 percent of the total outstanding stock of Lee,the year-end adjustment entry in Garcia Corporation's books is:

An individual can be prosecuted by the SEC for insider trading whether or not that individual is employed by the company involved.

Tomlin Enterprises has a credit balance of $80,000 in its Allowance to Adjust Long-Term Investments to Market account before adjustment.Its investment portfolio has a total cost of $500,000 and a market value of $450,000.The year-end adjustment entry that would be recorded in the books of Tomlin Enterprises is:

Riley Company has a credit balance of $44,000 in its Allowance to Adjust Long-Term Investments to Market account at the end of the year,before adjustment.Its investment portfolio has a total cost of $300,000 and a market value of $264,000 at December 31,a balance sheet date.The year-end adjustment entry that would be recorded in the books of Riley Company is:

When the equity method is used to account for an investment in stock,dividends received by the investor decrease the investment account.

A controlling investment is defined as ownership of more than 50 percent of the stock of another company.

When bonds are intended to be held to maturity,they are accounted for at

When the accounting period ends before U.S.Treasury bills are scheduled to mature,the investor's adjusting entry would include a

Sofranko Corporation purchased 8,000 shares of Bussey Corporation common stock for $80 per share on January 1,2014.Bussey reported net income of $240,000 for 2014 and paid dividends of $84,000 during 2014.As of December 31,2014,the market value of Bussey Corporation common stock was $80 per share.Assuming the shares owned by Sofranko represent 10 percent of the total outstanding stock of Bussey,the entry to record the receipt of dividend income in Sofranko Corporation's books is: