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Exam 13: Investments and Fair Value Accounting

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Question 41

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Blanton Corporation purchased 15% 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?

A) debit Investment in Worton Corporation; credit Cash
B) debit Cash; credit Dividend Revenue
C) debit Investment in Worton Corporation; credit Income of Worton Corporation
D) debit Cash; credit Investment in Worton Corporation

E) A) and D)
F) All of the above

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Question 42

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Nicer Corporation reported net income of $50,000 in the current year. There are 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 par common stock outstanding. During the year, Nicer paid the preferred stockholders a $6 per share dividend and also paid $30,000 to common shareholders. The market value of Nicer's stock is preferred stock, $95, and common stock, $5.00. a) Calculate Nicer's dividend yield. b) Why does the dividend yield vary widely across firms?

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a) Dividend yield = $0.60*/$5.00 = 12%
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Question 43

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Herberto Company had a net income of $74,000 and other comprehensive loss of $8,500 for the year. On January 1, the retained earnings balance was $425,000 and the accumulated other comprehensive income balance was $52,000. Determine the a) comprehensive income for the year, b) retained earnings balance on December 31, and c) the accumulated other comprehensive income on December 31.

On October 1, 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, the date of the last semiannual interest payments. Journalize the purchase.

On May 1, Cedar Inc. purchases $100,000 of 10-year, Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest. What entry would Cedar record when receiving its semiannual interest on September 1?

On April 1, Alliance Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000. On June 30, Alliance received its first semiannual interest. On February 1, Alliance sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Alliance will record on April 1 for the purchase of the bonds will include a

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is

Investment in Bonds is listed on the balance sheet after Bonds Payable.

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

A company uses cash to pay all of the following except

Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment-Treasury Bonds account?

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

The cost method of accounting for stock

Match each of the definitions that follow with the appropriate investment term a-j) . -debt and equity securities purchased and sold to earn short-term profits from changes in the market price

The journal entry Pierce will record on February 1 will include a

Journalize the entries to record the following selected equity investment transactions completed by Flurry Company during the current year. Flurry's purchase represents less than 20% of the total outstanding Braxter stock. February 2 Purchased for cash 500 shares of Braxter Co. stock for $34 per share plus a $250 brokerage commission. April 16 Received dividends of $0.35 per share on Braxter Co. stock. June 17 Sold 100 shares of Braxter Co. stock for $40 per share less a $100 brokerage commission.

Match each of the definitions that follow with the appropriate investment term a-j) . -combined reporting of a corporation and other corporations it controls

Match each of the definitions that follow with the appropriate investment term a-j) . -notes and bonds that pay interest and have a fixed maturity

Skyline, Inc. purchased a portfolio of available-for-sale 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 available-for-sale security portfolio to fair value on December 31. b) Where will the information from the journal entry be reported on the financial statements?