Question 1

On July 1,2016,Tremen Corporation acquired 40% of the shares of Delany Company.Tremen paid $3,000,000 for the investment,and that amount is exactly equal to 40% of the book value of identifiable net assets on Delany's balance sheet.Delany recognized net income of $1,000,000 for 2016,and paid $150,000 of dividends each quarter to its shareholders.After all closing entries are made,Tremen's "Investment in Delany Company" account would have a balance of:

Accepted Answer

A) $3,200,000. 
B) $3,160,000. 
C) $3,000,000. 
D) $3,080,000.

Question 2

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Accepted Answer

The answer of Listed below are five terms followed by...

Question 3

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Accepted Answer

A) True 
 B)False

Question 4

Newjohn Company owns stock in several affiliated companies.Investments in some of these affiliates are accounted for as securities available for sale while some are accounted for using the equity method.
Required:
(1. )What factors determine which method should be used?
(2. )What events are recorded when the equity method is used?
(3. )What events are recorded when the securities are accounted for as available for sale?

Accepted Answer

The answer of Newjohn Company owns stock in several affiliated...

Question 5

Under IAS No.39,which is not a category for accounting for investments?

Accepted Answer

A) Fair value through profit and loss. 
B) Fair value through other comprehensive income. 
C) Held-to-maturity. 
D) Available-for-sale.

Question 6

Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols calculates that the bonds have incurred credit losses.Before-tax net income for 2016 will be reduced by:

Accepted Answer

A) $0. 
B) $10,000. 
C) $20,000. 
D) $30,000.

Question 7

Net unrealized holding gains (losses)are reported in the income statement for trading securities.

Accepted Answer

A) True 
 B)False

Question 8

Many corporations own more than 50% of the voting stock in other corporations.Sometimes these affiliated companies operate within the same industry,and many times the companies are in unrelated industries.
Required:
What is the significance of owning more than 50% of the voting common stock of another company?

Accepted Answer

The answer of Many corporations own more than 50% of...

Question 9

Boulter,Inc.began business on January 1,2016.At the end of December 2016,Boulter had the following investments in equity securities:

All declines in value are deemed to be temporary in nature.How should the corresponding losses be reflected in the financial statements at December 31,2016?

Accepted Answer

The answer of Boulter,Inc.began business on January 1,2016.At the end...

Question 10

What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2016? Assume a 40% tax rate.

Accepted Answer

The answer of What was the after-tax realized gain or...

Question 11

If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company has incurred a credit loss on the investment:

Accepted Answer

A) The investment is written down to fair value,and only the noncredit-loss component of the impairment loss is recognized in net income. 
B) The investment is written down to fair value,and the entire impairment loss is recognized in net income. 
C) The investment is written down to fair value,and only the credit-loss component of the impairment loss is recognized in net income. 
D) The investment is written down to fair value,but none of the impairment loss is recognized in net income.

Question 12

Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method.Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31,2015 and 2016,respectively.During 2016 Clor recognized $80,000 of net income and paid dividends of $30,000.Assuming that Bloomfield owned the same percentage of Clor throughout 2016,their percentage ownership must have been:

Accepted Answer

A) 15%. 
B) 18.75%. 
C) 30%. 
D) 50%.

Question 13

Which of the following is not true about derivatives?

Accepted Answer

A) Large losses on derivative investments have been reported in the press. 
B) Derivatives are so named because their value is derived from some underlying measure. 
C) Derivatives are useful instruments for managing risk. 
D) Accounting for derivatives is fully resolved and no additional rules or interpretations are likely.

Question 14

Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2013 for $50 per share and classified the investment as securities available for sale.Diamond's market value was $60 per share on December 31,2014,and $65 on December 31,2015.During 2016,Hawk sold all of its Diamond stock at $70 per share.In its 2016 income statement,Hawk would report:

Accepted Answer

A) A gain of $ 50,000. 
B) A gain of $150,000. 
C) A gain of $200,000 
D) A gain of $300,000.

Question 15

All investments in debt securities whose fair values are not readily determinable are carried at historical cost.

Accepted Answer

A) True 
 B)False

Question 16

Companies need to consider GAAP regarding fair value measurements when determining the fair value of an investment that distinguishes between various levels of inputs to fair value determination.
Required:
Describe the various levels of inputs,explaining key aspects that distinguish them,and indicate which level is most preferred and which is least preferred.

Accepted Answer

The answer of Companies need to consider GAAP regarding fair...

Question 17

Which of the following is not true about the "fair value through profit and loss" approach for accounting for investments under IFRS?

Accepted Answer

A) Allowed under both IAS No.39 and IFRS No.9. 
B) Includes unrealized gains in earnings. 
C) Requires reclassification of realized gains from other comprehensive income. 
D) Not vulnerable to other-than-temporary impairments.

Question 18

Prepare journal entries that Fragrance International recorded at June 30,2016,to (1)record any necessary changes to the fair value adjustment for available-for-sale securities and (2)record any tax effects associated with those changes.

Accepted Answer

The answer of Prepare journal entries that Fragrance International recorded...

Question 19

On January 1,2016,Nana Company paid $100,000 for 8,000 shares of Papa Company common stock.These securities were classified as trading securities.The ownership in Papa Company is 10%.Papa reported net income of $52,000 for the year ended December 31,2016.The fair value of the Papa stock on that date was $45 per share.What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31,2016?

Accepted Answer

A) $284,400. 
B) $300,000. 
C) $315,600. 
D) $360,000.

Question 20

What is the effect on a company's cash flows and reported profit from accounting for an investment as a trading security as compared to accounting for it as an available-for-sale security?

Accepted Answer

The answer of What is the effect on a company's...

Exam 12: Investments

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Under IAS No.39,which is not a category for accounting for investments?

Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols calculates that the bonds have incurred credit losses.Before-tax net income for 2016 will be reduced by:

Net unrealized holding gains (losses)are reported in the income statement for trading securities.

Boulter,Inc.began business on January 1,2016.At the end of December 2016,Boulter had the following investments in equity securities: All declines in value are deemed to be temporary in nature.How should the corresponding losses be reflected in the financial statements at December 31,2016?

What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2016? Assume a 40% tax rate.

If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company has incurred a credit loss on the investment:

Which of the following is not true about derivatives?

All investments in debt securities whose fair values are not readily determinable are carried at historical cost.

Which of the following is not true about the "fair value through profit and loss" approach for accounting for investments under IFRS?

Prepare journal entries that Fragrance International recorded at June 30,2016,to (1)record any necessary changes to the fair value adjustment for available-for-sale securities and (2)record any tax effects associated with those changes.

What is the effect on a company's cash flows and reported profit from accounting for an investment as a trading security as compared to accounting for it as an available-for-sale security?