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Exam 15: Investments and Fair Value Accounting

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Question 1

Multiple Choice

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

A) the amount paid for the stock by the investor
B) whether the acquisition of the stock by the investor was "friendly" or "hostile"
C) the extent of an investor's influence over the operating and financial affairs of the investee
D) whether the stock has paid dividends in past years

E) A) and D)
F) A) and B)

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Question 2

Multiple Choice

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Temporary investments

A) are reported as current assets
B) include cash equivalents
C) do not include equity securities
D) All of these choices

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

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A

Question 3

Multiple Choice

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Match each of the definitions that follow with the appropriate investment term (a-j) . -A balance sheet account where the fair value adjustment for investments is reported

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

The investor carrying an investment by the equity method records cash dividends received as an increase in the amount of the investment.

Comprehensive income does not affect net income or retained earnings.

Match each of the definitions that follow with the appropriate investment term (a-j) . -The method of reporting an investment that represents less than 20% of the voting stock of another company

Long-term investments are held for all of the following reasons except to

The income statement for Dobson 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.

Changes in the value of available-for-sale securities are

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

Held-to-maturity securities

Trading securities are

Match each of the definitions that follow with the appropriate investment term (a-j) . -Debt investments that a company intends to keep until their maturity date

Journalize the entries to record the following selected equity investment transactions completed by Perry Company during the current year. Perry accounts for this investment using the cost method.​

Investment in certificates of deposit and other securities that do not change in value are reported on the balance sheet as

Skyline, Inc. purchased a portfolio of trading securities during the current fiscal year. The cost and fair value of this portfolio on December 31 were 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?

Held-to-maturity investments are recorded at their cost, which would include broker's commissions.

Unrealized gains and losses on trading securities are not included in the calculation of income from operations.

Match each of the definitions that follow with the appropriate investment term (a-j) . -Securities not held for trading or to maturity or other strategic reasons