Chapter 15 LS

Which of the following statements support reasons that companies make investments?

- To produce income for pension funds - To produce higher income using excess cash

Identify the three factors that help determine how to account for investments in securities.

- The intent to hold as either short-term or long-term - The percent ownership - The security type (debt or equity)

Identify the accounting method for each type of security. - debt investments - held - to - maturity - debit investments- trading - equity method investments- significant influence

- cost - fair value - equity

A long-term investment classified as equity securities with significant influence implies that the investor can exert significant influence over the investee. An investor that owns _______ or more (but no more than ______) of a company's voting stock is usually presumed to have a significant influence over the investee.

20%; 50%

Johnson, Inc. holds equity securities in Flavor Co. with a significant influence. This means that Johnson, Inc. must hold _______% of Flavor Co. stock.

45

A long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee. An investor who owns more than ____% of a company's voting stock has control over the investee.

50

A long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee. An investor who owns more than __________% of a company's voting stock has control over the investee.

50

___________ securities are debt investments not classified as trading or held-to-maturity securities.

Available-for-sale

Phoenix Co. paid $25,000 to buy a 5%, 2-year bond payable with a $25,000 par value. The bonds pay interest semiannually. Phoenix intends to hold the bonds until they mature. The entry to reflect this purchase would include a debit to which of the following accounts in what amount?

Debt Investments for $25,000

_________ securities are debt securities a company intends and is able to hold until maturity. They are reported in current assets or long-term assets, depending on their maturity date.

Held-to-maturity

Conway Co. purchases 1,000 shares of Ellis Co. common stock at par value for $35,000. Conway records the purchase of this equity investment with insignificant influence with a debit to _______ and a credit to Cash.

Stock Investments

Which of the following is not a factor that helps determine how to account for investments in securities? - The security type (debt or equity) - The intent to hold short-term or long-term - The dollar amount of the investment - The percentage ownership

The dollar amount of the investment

Which of the following is not a reason that companies make investments? - For strategic reasons, such as an investment in a customer - To produce income for certain entities, such as mutual funds and pension funds - To reduce risk of bankruptcy - To produce higher income with excess cash

To reduce risk of bankruptcy

_______ securities are debt investments that the company intends to actively buy and sell for profit. They are always classified as current assets.

Trading

Debt investments not classified as trading or held-to-maturity securities are called __________ -for- __________.

available; sale

Wendall Co. purchases 500 shares of Orison Inc. common stock at par value for $15,000. Wendall records the purchase of equity investments with insignificant influence with a (debit/credit) __________ to Stock Investments.

debit

Lacey Co. paid $20,000 to buy a 5%, 5-year bond payable with a $20,000 par value. The bonds pay interest semiannually. Lacey intends to hold the bonds until they mature. The entry to reflect this purchase would include a (debit/credit) __________ to Debt Investments in the amount of $__________

debit; 20000

Held-to-maturity securities are debt securities a company intends and is able to hold until __________. They are reported in current assets or long-term assets, depending on their maturity date.

maturity

An important ratio in assessing financial performance that takes net sales divided by average total assets is the:

total asset turnover ratio

Grady Co. purchased debt securities that it plans to actively buy and sell for profit. Grady will record these securities as __________ securities on its balance sheet.

trading