Debt investments that are held to maturity are recorded at
original cost.
fair value.
maturity value.
amortized cost
Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?
% of Investor Ownership Presumed Influence
Between 20%-50% Significant
Between 20%-50% Controlling
More than 50% Long-term
Less than 20% Short-term
If one company owns more than 50% of the common stock of another company,
a parent-subsidiary relationship exists.
a partnership exists.
the cost method should be used to account for the investment.
the company whose stock is owned must be liquidated.
Under the equity method, the investor records dividends received by crediting
Revenue from Investment.
Dividend Revenue.
Stock Investments.
Investment Income.
Under the equity method, the Stock Investments account is credited when the
investment is originally acquired.
investee reports net income and when the investment is originally acquired.
investee reports net income.
investee reports a net loss.
Laramie industries owns 45% of McCook Company. For the current year, McCook reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Laramie's equity in McCook's net income and the receipt of dividends from McCook?
Dec. 31 Stock Investments 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash 60,000
Stock Investments 60,000
Dec. 31 Stock Investments 85,500
Revenue from Stock Investments 85,500
Dec. 31 Revenue from Stock Investments 112,500
Stock Investments 112,500
Dec. 31 Stock Investments 27,000
Cash 27,000
Nadia Corp. has common stock of $5,500,000, retained earnings of $3,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on non-trading securities of $200,000. What is the total amount of its stockholders' equity?
$8,600,000
$8,300,000
$8,500,000
$8,400,000
On September 30, 2013, Fowler Corporation invested $800,000 in common stock of Mallard Industries as short-term non-trading securities. The market value of this investment was $830,000 at December 31, 2013, but had slipped to $825,000 by December 31, 2014. Assuming Fowler does not sell this investment and last adjusted the investment when preparing the financial statements on December 31, 2013, the adjustment necessary at December 31, 2014, includes a(an)
$5,000 debit to Stock Investments.
$5,000 debit to Unrealized Gain or Loss-Equity.
$825,000 debit to Fair Value Adjustment-Non-Trading
$25,000 credit to Unrealized Gain or Loss-Equity.
At the end of its first year, the trading securities portfolio consisted of the following common stocks.
Cost Fair Value
Atrium Corporation $ 46,400 $ 50,000
Barnes Inc. 60,000 57,000
Cantor Corporation 80,000 76,000
$186,400$183,000
The unrealized loss to be recognized under the fair value method is
$6,000.
$3,400.
$4,000.
$3,000.
On January 1, Bacon Company purchased as an investment a $1,000, 7% bond for $1,020. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?
Interest Receivable 70
Interest Revenue 70
Interest Receivable 35
Interest Revenue 35
Debt Investments 70
Interest Revenue 70
Debt Investments 35
Interest Revenue 35
On January 1, Talent Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?
Cash 1,220
Debt Investments 1,050
Gain on Sale of Debt Investments 150
Interest Revenue 20
Cash 1,200
Debt Investments 1,050
Gain on Sale of Debt Investments 150
Cash 1,200
Debt Investments 1,200
Cash 1,220
Debt Investments 1,200
Interest Revenue 20
If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is
the equity method.
determined by agreement with whomever owns the remaining 90% of the stock.
the preparation of consolidated financial statements.
the cost method.
In accounting for stock investments between 20% and 50%, the _______ method is used.
controlling interest
consolidated statements
equity
cost
Locke Co. purchased 50, 6% Johnston Company bonds for $50,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a
credit to Interest Revenue for $1,515.
credit to Debt Investments for $1,515.
debit to Interest Receivable for $1,500.
credit to Interest Revenue for $1,500.
Cosmic Company has the following data at December 31, 2013 for its securities:
Securities Cost Fair Value
Non-trading $46,000 $48,000
Trading 65,000 61,000
Based on this information, the adjusting entry to report the securities at fair value at December 31, 2013 will include a
credit to Unrealized Gain or Loss-Equity for $2,000.
credit to Fair Value Adjustment-Non-Trading for $4,000.
debit to Unrealized Gain or Loss-Equity for $4,000.
debit to Fair Value Adjustment-Trading for $4,000