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Exam 13: Investments and Fair Value Accounting

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Question 51

Multiple Choice

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Temporary investments are

A) recorded at cost but reported at fair market value
B) recorded at cost and reported at cost
C) recorded at cost but reported at lower of cost or fair market value
D) recorded at fair market value and reported at fair market value

E) C) and D)
F) B) and D)

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Question 52

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A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $.75 per share. The market value of the stock is $20.00 per share. The company's dividend yield is:

A) 3.75%
B) 400%
C) 15%
D) 25%

E) None of the above
F) B) and C)

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Question 53

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Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except:

Prepare the journal entries for the following transactions for Batson Co.

Interest revenue on bonds is reported

Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

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

Trading securities are reported on the balance sheet at cost.

On January 1, 2012, Valuation Allowance for Trading Investment has a zero balance . On December 31, 2012, the cost of trading securities portfolio was $52,400, and the fair value was $53,000. Required: Prepare the December 31, 2012, adjusting journal entry to record the unrealized gain or loss on trading investments.

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the purchase would be:

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $40.50 per share. What is the amount of gain or loss on the sale?

During 2012, its first year of operations, Makala Company purchased two available-for-sale investments as follows: Assume that as of December 31, 2012, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc. stock had a market value of $20 per share. Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, 2012, Makala had a net income of $105,000. No dividends were paid. Required:

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

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

When long-term investments in bonds are sold before their maturity date, the seller deducts any accrued interest since the last interest payment date from the selling price.

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2012. Marco reported net income of $80,000 and declared dividends of $20,000 during 2012. How much would Ramiro adjust their investment in Marco Company under the equity method?

On October 1, 2012, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8 1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, 2012, the date of the last semi-annual interest payments. Journalize the purchase.

When the cost method is used to account for an investment, the carrying value of the investment is affected by