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Exam 29: Investments

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Question 41

Multiple Choice

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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?

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

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

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Question 42

Multiple Choice

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

A) prior period adjustment
B) operating income and losses
C) paid-in capital addition
D) gain or loss

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

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Question 43

Multiple Choice

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

The company whose stock is more than 50% owned by another company is called the

Long-term investments are held for all of the listed reasons below except

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.

On May 1, Cedar Inc. purchases $150,000 of 10-year, Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest. What entry would Cedar record when receiving its semiannual interest on March 1?

Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -a corporation controlled by another corporation that owns all or the majority of its voting stock

Investments in bonds that management intends to hold to maturity are called trading securities.

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 outstanding stock of another company A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

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

The Valuation Allowance for Trading Investments account is found on the

Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -the value assigned to held-to-maturity securities

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

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?

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

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Present entries to record the following selected transactions: (a)Purchased bonds at 93 for $465,000.(b)Sold half the bonds at 98 plus accrued interest of $4,000. The broker deducted $200 for brokerage fees and taxes, remitting the balance. The bonds were carried at $479,000 at the time of the sale.

Define debt securities and equity securities. Include their similarities and differences in your discussion.