Exam 15: Investments and Fair Value Accounting

What is comprehensive income? How is it calculated? What are some examples of items included in other comprehensive income? Where is comprehensive income reported?

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Question 1

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Comprehensive income is all changes in stockholders' equity during a period except those resulting from dividends and stockholders' investments.
It is calculated by adding other comprehensive income to net income.
Other comprehensive income items include unrealized gains and losses on available-for-sale-securities and other items including foreign currency and pension liability adjustments.
Comprehensive income is reported in the financial statements in one of the following ways:
1. On the income statement
2. In a separate statement of comprehensive income
3. In the statement of stockholders' equity

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

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Question 2

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Which of the following is not a part of comprehensive income?

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Question 3

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An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

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Question 4

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

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Question 5

Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.

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Question 6

Which of the following is not a reason to invest excess cash in temporary investments?

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Question 7

Investment in Bonds are reported on the balance sheet at lower of cost or market.

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Question 8

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

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Question 9

Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.

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Question 10

The account Unrealized Gain (Loss) on Trading Securities should be included in the

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Question 11

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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Question 12

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

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Question 13

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

(True/False)

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Question 14

All of the following are disadvantages of fair value use except:

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Question 15

Match each of the following investment terms with the appropriate definition below.

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Question 16

The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

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Question 17

Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

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Question 18

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

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Question 19

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31, 2012 before considering the following: During the year the company purchased trading securities. At year end, the fair value of the investment portfolio was $23,000 less than cost. The balance of retained earnings was $823,000 on December 31, 2011. Hudson Company paid $43,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

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Question 20

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Exam 15: Investments and Fair Value Accounting

What is comprehensive income? How is it calculated? What are some examples of items included in other comprehensive income? Where is comprehensive income reported?

Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is under International Financial Reporting Standards (IRFS).

Which of the following is not a part of comprehensive income?

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.

Which of the following is not a reason to invest excess cash in temporary investments?

Investment in Bonds are reported on the balance sheet at lower of cost or market.

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.

The account Unrealized Gain (Loss) on Trading Securities should be included in the

Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

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

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

All of the following are disadvantages of fair value use except:

Match each of the following investment terms with the appropriate definition below.

The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

Available-for-sale securities are securities that management expects to sell in the future, but are actively traded for profit.

Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

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