Problem 1: On December 31, 2020, Ryan Corp. acquired a 40% interest in Gosling Corp. for $315,000. During 2021, Gosling reported net income of $200,000 and paid total cash dividends of $50,000. Assuming Ryan uses the equity method, at December 31, 2021, the balance in the investment account should be
a. $395,000.
b. $255,000.
c. $295,000.
d. $375,000.
Problem 2: On October 1, 2020, Barrick Corp. purchased 800, $1,000, 9% bonds for $792,000, which included $12,000 accrued interest. The bonds, which mature on February 1, 2029, pay interest semi-annually on February 1 and August 1. The bonds will be held to maturity. Barrick uses the straight-line method of amortization. The bonds, which are accounted for under the amortized cost model, should be reported in the December 31, 2020 balance sheet at a carrying value of
a. $780,600.
b. $792,000.
c. $792,240.
d. $780,000.
Problem 3: On November 1, 2020, Jepson Ltd. purchased 300 of the $1,000 face value, 9% bonds of Carly Corp., for $316,000, which included accrued interest of $4,500. The bonds, which mature on January 1, 2025, pay interest semi-annually on March 1 and September 1. The bonds will be held to maturity. Assuming that Jepson uses the straight-line method of amortization and that the bonds are accounted for under the amortized cost method, the carrying value of the bonds should be shown on Jepson's December 31, 2020, statement of financial position at
a. $300,000.
b. $311,040.
c. $311,500.
d. $316,000.
Problem 4: On its December 31, 2020, balance sheet, Red Corp. reported a short-term investment in equity securities, under the fair value through net income model, at $330,000. At December 31, 2021, the fair value of the securities was $350,000. What should Red report on its 2021 income statement as a result of the increase in fair value of the investments during 2021?
a. Unrealized gain of $20,000.
b. $0.
c. Investment income of $20,000.
d. Loss on investments of $20,000.
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