chapter 8

Kelsey Company owns 30% interest in the stock of David Corporation. During the year, David pays $25,000 in dividends, and reports $100,000 in net income. What is the increase of Kelsey Company's investment in David?

$22,500

Ace Company purchased 1,000 shares of Nott Company at $40 per share. Ace received an additional 250 shares from Nott Company as a stock dividend. After receiving the stock dividend, the total value of the investment in Nott and cost per share of Nott, respectively, is

$40,000 and $32.

Nantucket Company owns a 30% interest in the stock of Franklin Corporation. During the year, Nantucket debited the Investment account for $22,500 and credited the account for $15,000. Based on this information, Franklin must have paid dividends of

$50,000.

Davis Company purchased 30% of the outstanding shares of Ocean Corporation on January 1 at a cost of $580,000. Ocean Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year. At the end of the year, Ocean shares had a current market value of $590,000. After all necessary adjusting entries are made for the year, what will be the balance in Davis Company's Long-Term Investment account?

$580,000.

On January 1, 2012, Cashew Corporation purchased 70,000 of the 210,000 shares of outstanding stock of Peanut Company for $550,000. Net income reported by Peanut Company for 2012 was $450,000. Dividends paid by Peanut Company during 2012 were $150,000. The amount of the long-term investment will appear on Cashew Corporation's December 31, 2012 balance sheet as

$650,000.

The market value of an available-for-sale security has decreased from the last carrying value. The journal entry to record this decrease includes

B) a credit to the Allowance to Adjust Investment to Market. C) a debit to the Unrealized Loss on Investment.

Acme Company owns 35% of Superior Company. Superior Company paid $35,000 cash dividends for the year. Acme Company's journal entry to record the dividends includes a credit to

Long-Term Investments for $12,250.

Dole Company, the subsidiary company, borrowed $80,000 from Anderson Company, the parent company, on a note payable during the year. Before the consolidation entries were made, the balances in Anderson Company's Notes Receivable and Notes Payable accounts were $180,000 and $275,000, respectively. A consolidated balance sheet shows

Notes Receivable of $100,000 and Notes Payable of $275,000.

The balance in the Unrealized Gains and Losses on Available-for-sale Securities account appear in which financial statement?

The balance sheet, as part of the stockholders' equity section

If one company owns more than 50% of the common stock of another company

a parent-subsidiary relationship exists

The Allowance to Adjust Investment to Market has a debit balance. Therefore the Allowance account is

added to the carrying amount

Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation will show the investment on their books as

an asset.

Unrealized gains and losses from available-for-sale investments arise from

changes in the market value of the investment.

The Unrealized Gain or the Unrealized Loss Account appears in other

comprehensive income and accumulated other comprehensive income.

On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment includes a

credit to Interest Revenue for $1,500

Perdue Company had the following transactions pertaining to stock investments: - February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share. - June 1, Received cash dividends of $6,000 on Hudson Company stock. - October 1, Sold 3,000 shares of Hudson stock for $54,000. The entry to record the sale of the stock includes a

credit to Long-Term Investment for $51,000.

The Allowance to Adjust Investment to Market account has a current credit balance of $892. Available-for-sale investments with a cost of $17,000 have a current market value of $18,500. The adjusting entry will require a:

debit to Allowance to Adjust Investments to Market for $2,392.

Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 includes a

debit to Cash $1,050.

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry to record the purchase of the bond investment on January 1, 2012, includes a

debit to Long-Term Investment in Bonds for$ 90,400

On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry to record the purchase of the bond investment on January 1, 2012, includes a

debit to Long-Term Investment in Bonds for$ 90,400.

On the balance sheet, available-for-sale investments in stock are reported as

either current assets or long-term assets, depending on when the investment is expected to be sold.

Under the equity method, the Long-Term Investment account is debited when the

investee reports net income.

Receiving a stock dividend from an available-for-sale investment requires the following journal entry

no journal entry. Investor makes a memorandum entry in the accounting records.

If an investor owns less than 20% of the common stock of another company as a long-term investment

the investor usually is deemed to have little or no influence on the investee.

On the balance sheet, Available-for-sale investments in stock are reported at

their current market value.