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Exam 13: Investments and Fair Value Accounting

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Question 71

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Which of the following would be considered an "other comprehensive income" item?

A) net income
B) extraordinary loss related to flood
C) gain on disposal of discontinued operations
D) unrealized loss on available-for-sale securities

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Question 72

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If one company owns more than 50% of the common stock of another company

A) a partnership exists
B) a parent-subsidiary relationship exists
C) the company whose stock is owned must be liquidated
D) the cost method should be used to account for the investment

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Question 73

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Which of the following statements is not a reason a company may purchase another company's stock?

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

Temporary investments such as in trading securities are

The account Unrealized Gain Loss) on Available-for-Sale Investments should be included on the

Alan Company purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Alan later sold $250,000 of bonds at 97. The journal entry for the purchase would include a

Match each of the definitions that follow with the appropriate investment term a-j) . -the method for accounting for investments of 20-50% in another company's stock

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.

The Valuation Allowance for Trading Investments account is found on the

Skyline, Inc. purchased a portfolio of trading securities during the current fiscal year. The cost and fair value of this portfolio on December 31, was as follows: a) Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31. b) Where will the information from the journal entry be reported on the financial statements?

The cumulative effects of other comprehensive income items may be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

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

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 income statement for Dodson Corporation reported net income of $22,400 for the year ended December 31 before considering the following: During the year the company purchased available-for-sale securities. At year end, the fair value of the investment portfolio was $2,100 more than cost. The balance of Retained Earnings was $83,000 on January 1. Dobson Corporation paid $9,000 in cash dividends during the year. Calculate the balance of Retained Earnings on December 31.

Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.

Held-to-maturity securities are reported on the balance sheet at fair market value.

Match each of the definitions that follow with the appropriate investment term a-j) . -recognition of changes in the fair value of short-term investments

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its investment in Reyes Company under the equity method?