Chapter 10 (quick check & quiz)
Most likely classified as held to maturity investment
10 year bonds
A company invested $45,000 in Yale Co. stock. The investment represented 5% of the voting stock. If the Yale Co. stock investment paid dividends, what account would be credited?
Dividend Revenue
Maize Co. pays $532,000 for 100,000 shares to acquire 45% common stock of Teal Investments Inc on Jan 5, 2017. Maize Co sells 20,000 shares for $40,000 on Jan 6, 2017. What is the journal entry for transaction on Jan 6?
Dr) Cash $40,000 Loss on Disposal $66,400 Cr) Long Term investment-Teal Investments, Inc. $106,400 532,000/100,000 = 5.32 20,000 x 5.32 = 106,400
Comparison between equity securities and debt securities
Equity securities earn dividend revenue whereas debt securities earn interest revenue
Diamond investments purchased 40% of the common stock of Ivory Co on March 1, 2016. Ivory Co reports ent income of $675,000 for year 2017. What will happen on balance sheet on Dec 31, 2017?
Total equity will increase
Assume intervale railway is considering investing in Pale Co. stock for three months. The investment will represent 5% of the voting stock of Pale Co. How would the investment be classified?
Trading investment
Available for Sale securities investment
a debt security that is not a held to maturity investment of a trading investment
Trading investments must be...
adjusted and reported at fair value at the end of each accounting period
If there is an unrealized holding gain on available for sale investments, it is reported...
as an adjustment to stockholder' equity on the balance sheet
If intervale railway invests $100,000 in 5% bonds at face value that the company intends to hold until the bond maturity, the interest revenue recognized when each semiannual interest payment is received would be recorded as...
credit to Interest Revenue 2500 100,000 x 5% = 5,000 x 6/12 = 2500
If a company owns 25% of the voting stock of Pink Co., dividends received will be...
credited to long term investments-Pink Co.
All available for sale (AFS) investments in equity securities are reported on balance sheet at...
current market
Held To Maturity investment
debt security the investor intends to hold until it matures
Trading Securities investment
debt security the investor plans to in the very near future
When applying rules of the equity method, the long term investments account is credited for the receipt of a cash dividend because...
dividend decreases the investors investment
Equity securities in which the investor owns less than 20% ownership in the voting stock of the investee can be...
either trading investments or available for sale investments
Equity Method
holdings between 20% and 50%; significant influence Dr) Cash Cr) Long Term Investment - Co. Name
Fair Value Method
holdings of less than 20%; has little or no influence Dr) Cash Cr) Dividend Revenue*
Consolidated Method
holdings of more than 50%; controlling interest
Best Appliances owns 90% of the voting stock of Wratchet Inc. Best would be considered the...
parent entity
When there is unrealized loss on trading investments, the __________ will decrease
total equity
