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Exam 15: Investments

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Question 51

Multiple Choice

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MotorCity,Inc.purchased 40,000 shares of Shaw common stock for $232,000.This represents 40% of the outstanding stock.The entry to record the transaction includes a:

A) Debit to Equity Method Investments for $92,800.
B) Debit to Equity Method Investments for $232,000.
C) Credit to Equity Method Investments for $92,800.
D) Debit to Equity Method Investments -HTM for $232,000.
E) Debit to Short-Term Investment-AFS for $232,000.

F) A) and E)
G) C) and D)

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Question 52

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The adjustment to fair value of trading securities is included in the calculation of net income.

A) True
B) False

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Question 53

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Long-term investments cannot include:

When the cost of a long-term held-to-maturity debt security is different from the maturity value,the difference is amortized over the remaining life of the security.

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities.The year-end cost and fair values for its portfolio of these investments follow.The year-end adjusting entry to record the unrealized gain/loss at December 31,20X1 is:

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.What is the book value of Barber's investment in Convell at the end of Year 2?

Long-term investments in held-to-maturity debt securities are accounted for using the:

Dividends received from stock investments with insignificant influence are recorded as a reduction in the investment account.

Weston Company had the following long-term equity securities in its portfolio at December 31,Year 1.Weston had several long-term investment transactions during the next year.After analyzing the effects of each transaction,(1)determine the amount Weston should report on its December 31,Year 1 balance sheet for its long-term investments in available-for-sale securities,(2)determine the amount Weston should report on its December 31,Year 2 balance sheet for its long-term investments in equity securities,(3)prepare the necessary adjusting entry to record the fair value adjustment at December 31,Year 2.

On July 31,Potter Co.purchased GigaTech bonds for $16,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On October 31,which is Potter's year-end,the bonds had a fair value of $20,000.Potter should record a:

On January 1,Jewel Company buys $200,000 of Marcelo Corp.12%,36-month notes.Interest is paid on the last day of each month.The notes are classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On December 31,the notes have a fair value of $204,000.The amount that Jewel Company should report in the investment section of its year-end December 31 balance sheet for its investment in Marcelo Corp.is:

Segmental Manufacturing owns 35% of Glesson Corp.stock.Glesson pays a total of $47,000 in cash dividends for the period.Segmental's entry to record the dividend transaction would include a:

________ financial statements show the financial position,results of operations,and cash flows of all entities under the parent company's control,including all subsidiaries.

Both U.S.GAAP and IFRS permit companies to use fair value in reporting available-for-sale and held-to-maturity securities.

Explain how to account for held-to-maturity debt securities at and after acquisition and how they are reported in the financial statements.

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry for the accrual of interest for the year-end December 31.

A company has net income of $250,000,net sales of $2,000,000,and average total assets of $1,500,000.Its return on total assets equals:

Profit margin reflects the percent of net income in each dollar of net sales.

Cloverton Corporation had net income of $30,000,net sales of $1,000,000,and average total assets of $500,000.Its return on total assets is:

When one company owns more than 50% of another company's voting stock and has control over the investee company,the investee is called the ________.