Question 1

If a company acquires a 40% common stock interest in another company

Accepted Answer

A)  the equity method is usually applicable. 
B)  all influence is classified as controlling. 
C)  the cost method is usually applicable. 
D)  the ability to exert significant influence over the activities of the investee does not exist.

Question 2

When the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account.

Accepted Answer

A) True 
 B)False

Question 3

Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti pays $60,000 in dividends to Bing, and reports $320,000 in net income. Bing Company's investment in Yeti l will increase Bing net income by

Accepted Answer

A)  $96,000. 
B)  $78,000. 
C)  $60,000. 
D)  $18,000.

Question 4

Dodd Company is considering an investment, which will return a lump sum of $675,000 four years from now. Below is some of the time value of money information that Dodd has compiled that might help in planning compounded interest decisions. $\begin{array}{ll}
\text { Present value of } 1 \text { for } 4 \text { periods at } 10 \% & 0.68301 \
\text { Future value of } 1 \text { for } 4 \text { periods at } 10 \% & 1.46410 \
\text { Present value of an annuity of } 1 \text { for } 4 \text { periods at } 10 \% & 3.16986 \
\text { Future value of an annuity of } 1 \text { for } 4 \text { periods at } 10 \% & 4.64100
\end{array}$ To the closest dollar, what amount should Dodd Company pay for this investment to earn a 10% return?

Accepted Answer

A)  $405,000 
B)  $270,000 
C)  $461,032 
D)  $534,914

Question 5

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

Accepted Answer

A)  the cost method. 
B)  the equity method. 
C)  the preparation of consolidated financial statements. 
D)  determined by agreement with whomever owns the remaining 90% of the stock.

Question 6

Patrick Mazzeo has been offered the opportunity of investing $89,278.45 now. The investment will earn 8% per year and at the end of its life will return $250,000 to Patrick. How many years must Patrick wait to receive the $250,000?

Accepted Answer

A)  10~11 
B)  11~12 
C)  12~13 
D)  13~14

Question 7

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Accepted Answer

A) True 
 B)False

Question 8

Charleston Co. purchased 60, 6% APS Company bonds for $60,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Accepted Answer

A)  debit to Interest Receivable for $1,800. 
B)  credit to Interest Revenue for $1,800. 
C)  credit to Interest Revenue for $3,600. 
D)  credit to Debt Investments for $1,800.

Question 9

Mergenthaler Company has just purchased machinery that requires annual payments of $50,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?

Accepted Answer

A)  $142,749 
B)  $200,000 
C)  $58,719 
D)  $225,201

Question 10

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The adjusting entry on December 31, 2014, is

Accepted Answer

The answer of On January 1, 2014, the LaRoche Company...

Question 11

The difference between the amount borrowed (or invested) and the amount repaid (or collected) is commonly known as

Accepted Answer

A)  simple interest. 
B)  an annuity. 
C)  interest 
D)  present value.

Question 12

The future value of a single amount is the value at a future date of a given amount invested assuming compound interest.

Accepted Answer

A) True 
 B)False

Question 13

On January 1, 2014, Redwood Creek Company purchased 5,000 shares of Monticello Company stock for $300,000. Redwood Creek investment represents 30 percent of the total outstanding shares of Monticello. During 2014, Monticello paid total dividends of $100,000 and reported net income of $290,000. What revenue does Garr report related to this investment and what is the amount to be reported as an investment in Monticello stock at December 31.

Accepted Answer

The answer of On January 1, 2014, Redwood Creek Company...

Question 14

Information pertaining to stock investments in 2012 by Com-ex Corporation follows:
Acquired 15% of the 200,000 shares of common stock of Buffalo Company at a total cost of $9 per share on January 1, 2014. On July 1, Buffalo Company declared and paid a cash dividend of $1.90 per share. On December 31, Bufflo reported net income was $675,000 for the year.
Obtained significant influence over Eta Company by buying 30% of Eta's 120,000 outstanding shares of common stock at a total cost of $25 per share on January 1, 2014. On June 15, Eta Company declared and paid a cash dividend of $2.50 per share. On December 31, Eta's reported net income was $330,000.
Instructions
Prepare all necessary journal entries for 2012 for Com-ex Corporation.

Accepted Answer

The answer of Information pertaining to stock investments in 2012...

Question 15

Montz Company is considering investing in an annuity contract that will return $80,000 annually at the end of each year for 12 years. Montz has obtained the following values related to the time value of money to help in its planning process and compounded interest decisions. $\begin{array}{lr}
\text { Present value of } 1 \text { for } 12 \text { periods at } 9 \% & 0.35554 \
\text { Future value of } 1 \text { for } 12 \text { periods at } 9 \% & 2.81267 \
\text { Present value of an annuity of } 1 \text { for } 12 \text { periods at } 9 \% & 7.16073 \
\text { Future value of an annuity of } 1 \text { for } 12 \text { periods at } 9 \% & 20.14072
\end{array}$ To the closest dollar, what amount should Montz Company pay for this investment if it earns a 9% return?

Accepted Answer

A)  $994,132 
B)  $1,185,014 
C)  $1,611,258 
D)  $572,858

Question 16

(a)What is the present value of $32,000 due 7 years from now, discounted at 8%?
(b) What is the present value of $70,000 due 5 years from now, discounted at 15%?

Accepted Answer

The answer of (a)What is the present value of $32,000...

Question 17

On January 1, Waverly Company purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Accepted Answer

The answer of On January 1, Waverly Company purchased as...

Question 18

Trading securities are reported on the balance sheet at

Accepted Answer

A)  fair value. 
B)  cost. 
C)  cost, adjusted for the effects of interest. 
D)  lower of cost or market.

Question 19

For accounting purposes, the method used to account for investments in common stock is determined by

Accepted Answer

A)  the amount paid for the stock by the investor. 
B)  the extent of an investor's influence over the operating and financial affairs of the investee. 
C)  whether the stock has paid dividends in past years. 
D)  whether the acquisition of the stock by the investor was "friendly" or "hostile."

Question 20

Short-term investments are securities that are _____________ and ______________ to be converted into cash within the next year.

Accepted Answer

The answer of Short-term investments are securities that are _____________...

Exam 14: Understanding Investments and Acquisitions in Accounting

If a company acquires a 40% common stock interest in another company

When the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account.

Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti pays $60,000 in dividends to Bing, and reports $320,000 in net income. Bing Company's investment in Yeti l will increase Bing net income by

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

Patrick Mazzeo has been offered the opportunity of investing $89,278.45 now. The investment will earn 8% per year and at the end of its life will return $250,000 to Patrick. How many years must Patrick wait to receive the $250,000?

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

Charleston Co. purchased 60, 6% APS Company bonds for $60,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Mergenthaler Company has just purchased machinery that requires annual payments of $50,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The adjusting entry on December 31, 2014, is

The difference between the amount borrowed (or invested) and the amount repaid (or collected) is commonly known as

The future value of a single amount is the value at a future date of a given amount invested assuming compound interest.

(a)What is the present value of $32,000 due 7 years from now, discounted at 8%? (b) What is the present value of $70,000 due 5 years from now, discounted at 15%?

On January 1, Waverly Company purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Trading securities are reported on the balance sheet at

For accounting purposes, the method used to account for investments in common stock is determined by

Short-term investments are securities that are _ and __ to be converted into cash within the next year.