Chapter 17 Multiple Choice- Computational

On its December 31, 2014, balance sheet, Trump Company reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2015, the fair value of the securities was $585,000. What should Trump report on its 2015 income statement as a result of the increase in fair value of the investments in 2015? A. $0. B. Unrealized loss of $15,000. C. Realized gain of $35,000. D. Unrealized gain of $35,000.

A. $0.

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the straight-line method, what is the amount of premium amortization that would be recognized in 2016 related to these bonds? A. $1,925 B. $1,266 C. $1,380 D. $1,506

A. $1,925

On November 1, 2014, Horton Company purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $600,000, for $540,000. An additional $15,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2021. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2014 income statement as a result of Horton's available-for-sale investment in Lopez was A. $10,500. B. $10,000. C. $9,000. D. $8,000.

A. $10,500.

During 2014, Woods Company purchased 60,000 shares of Holmes Corporation common stock for $945,000 as an available-for-sale investment. The fair value of these shares was $900,000 at December 31, 2014. Woods sold all of the Holmes stock for $17 per share on December 3, 2015, incurring $42,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2015 of A. $33,000. B. $75,000. C. $78,000. D. $120,000.

A. $33,000.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2015 is A. $35,000. B. $25,000. C. $15,000. D. $0.

A. $35,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. Harrison should report investment revenue for 2015 of A. $400,000. B. $320,000. C. $80,000. D. $0.

A. $400,000.

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? A. $51,240. B. $36,840. C. $14,400. D. No entry should be made.

A. $51,240.

On August 1, 2014, Fowler Company acquired $300,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2019, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2014? A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500 B. Debt Investments(dr) 319,500 Cash(cr) 319,500 C. Debt Investments(dr) 319,500 Interest Revenue(dr) 7,500 Cash(cr) 312,000 D. Debt Investments(dr) 300,000 Premium on Bonds(dr)19,500 Cash(cr) 319,500

A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. How much investment income should Dexter report in 2014? A. $160,000. B. $144,000. C. $96,000. D. $480,000.

B. $144,000.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $145,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the fair value method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $115,000. B. $145,000. C. $160,000. D. $154,000.

B. $145,000.

On October 1, 2014, Renfro Company purchased to hold to maturity, 3,000, $1,000, 9% bonds for $2,970,000 which includes $45,000 accrued interest. The bonds, which mature on February 1, 2023, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2014 balance sheet at a carrying value of A. $2,925,000. B. $2,927,250. C. $2,970,000. D. $2,970,750.

B. $2,927,250.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $215,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $270,000. B. $215,000. C. $172,500. D. $208,500.

B. $215,000.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $220,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the equity method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $220,000. B. $233,500. C. $242,500. D. $211,000.

B. $233,500.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015? A. $35,000. B. $25,000. C. $15,000. D. $0.

B. $25,000.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost 12/31/14 12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2015 related to its investments? A. $40,000 gain. B. $40,000 loss. C. $280,000 gain. D. $160,000 gain.

B. $40,000 loss

On January 2, 2015 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed dividends of $360,000. The ending balance in the Investment in Pod Company account at December 31, 2015 was $640,000 after applying the equity method during 2015. What was the purchase price Pod Company paid for its investment in Jobs, Inc? A. $340,000 B. $520,000 C. $760,000 D. $940,000

B. $520,000

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. If the beginning balance in the investment account was $600,000, the balance at December 31, 2015 should be A. $600,000. B. $680,000. C. $720,000. D. $800,000.

B. $680,000.

The following information relates to Windom Company for 2015: Realized gain on sale of available-for-sale securities= $30,000 Unrealized holding gains arising during the period on available-for-sale securities= $60,000 Reclassification adjustment for gains included in net income= $20,000 Windom's 2015 other comprehensive income is A. $50,000. B. $70,000. C. $90,000. D. $110,000.

B. $70,000.

On October 1, 2014, Menke Company purchased to hold to maturity, 400, $1,000, 9% bonds for $416,000. An additional $12,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2018. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2014 income statement from this investment should be A. $9,000. B. $8,040. C. $9,960. D. $10,920.

B. $8,040

Kern Company purchased bonds with a face amount of $800,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and paid accrued interest for three months of $20,000. The amount to record as the cost of this long-term investment in bonds is A. $848,000. B. $828,000. C. $816,000. D. $800,000.

B. $828,000.

During 2012, Hauke Company purchased 4,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2014 was $3,920,000. The bonds mature on March 1, 2019, and pay interest on March 1 and September 1. Hauke sells 2,000 bonds on September 1, 2015, for $1,976,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is A. $0. B. $9,600. C. $16,000. D. $22,400.

B. $9,600.

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2015, Patton Company should report interest revenue from the Scott Company bonds of: A. $95,382. B. $93,169. C. $93,078. D. $90,000.

B. $93,169.

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At February 1, 2015, Richman Company sold the Carlin bonds for $927,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2015 was $930,375. Assuming Richman Company has a portfolio of available-for-sale debt investments, what should Richman Company report as a gain (or loss) on the bonds? A. $0. B. ($3,375). C. ($19,683). D. ($26,433).

B. ($3,375).

At December 31, 2015, Atlanta Company has a stock portfolio valued at $80,000. Its cost was $66,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $4,000, which of the following journal entries is required at December 31, 2015? A. Fair Value Adjustment (available-for-sale)(dr) 14,000 Unrealized Holding Gain or Loss-Equity(cr) 14,000 B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000 C. Unrealized Holding Gain or Loss-Equity(dr) 14,000 Fair Value Adjustment (available-for-sale)(cr)14,000 D. Unrealized Holding Gain or Loss-Equity(dr) 10,000 Fair Value Adjustment (available-for-sale)(cr) 10,000

B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $175,000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $139,000. B. $115,000. C. $175,000. D. $180,000.

C. $175,000

Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2014 for $1,575,000. During 2015, Gannon had net income of $1,000,000 and paid cash dividends of $250,000. At December 31, 2015, the balance in the investment account should be A. $1,575,000. B. $2,175,000. C. $2,025,000. D. $2,325,000.

C. $2,025,000.

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2014 Cost /FairValue/UnrealizedGain (Loss) Catlett Corp.= $260,000/$205,000/$(55,000) Lyman, Inc.= 245,000/265,000/20,000 Total= $505,000/$470,000/ $(35,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2014 income statement if 2014 is Kramer's first year of operation? A. $0. B. $20,000 gain. C. $35,000 loss. D. $55,000 loss.

C. $35,000 loss.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost/ 12/31/14|12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporation's balance sheet at December 31, 2014? A. $80,000 gain. B. $120,000 gain. C. $40,000 gain. D. $240,000 gain.

C. $40,000 gain.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investment (Darby) account on December 31, 2015 should be A. $435,000. B. $495,000. C. $450,000. D. $510,000.

C. $450,000.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investment (Darby) account at December 31, 2015 should be A. $435,000. B. $450,000. C. $495,000. D. $510,000.

C. $495,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be A. $1,025,000. B. $825,000. C. $705,000. D. $625,000.

C. $705,000.

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $640,000? A. $784,000. B. $640,000. C. $736,000. D. $960,000.

C. $736,000.

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2014. Sherman Corporation had 100,000 shares of common stock outstanding during 2015, paid cash dividends of $90,000 during 2015, and reported net income of $300,000 for 2015. Ziegler Corporation should report revenue from investment for 2015 in the amount of A. $22,500. B. $52,500. C. $75,000. D. $82,500.

C. $75,000

On November 1, 2014, Howell Company purchased 800 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $842,000, which includes accrued interest of $12,000. The bonds, which mature on January 1, 2019, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2014, balance sheet at A. $800,000. B. $830,000. C. $828,800. D. $842,000.

C. $828,800.

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At April 1, 2015, Landis Company sold the Ritter bonds for $2,060,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960. Assuming Landis Company has a portfolio of Available-for-Sale Debt Securities, what should Landis Company report as a gain or loss on the bonds? A. ($58,740). B. ($43,740). C. ($4,960). D. $ 0.

C. ($4,960).

On August 1, 2014, Dambro Company acquired 800, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2020, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 is A. Debt Investments(dr) 794,000 Cash(cr) 794,000 B. Debt Investments(dr) 776,000 Interest Receivable(dr) 18,000 Cash(cr) 794,000 C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000 D. Debt Investments(dr) 800,000 Interest Revenue(dr) 18,000 Discount on Debt Investments (cr) 24,000 Cash (cr) 794,000

C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2015, Patton Company should increase its Debt Investments account for the Scott Company bonds by A. $5,382. B. $3,084. C. $2,691. D. $1,542.

D. $1,542.

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. Tracy should report investment revenue for 2015 of A. $40,000. B. $80,000. C. $100,000. D. $120,000.

D. $120,000.

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At December 31, 2014, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity? A. $0 B. $6,480 C. $16,578 D. $23,058

D. $23,058

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2015 related to these bonds? A. $30,000 B. $31,925 C. $28,734 D. $28,619

D. $28,619

During 2014 Logic Company purchased 8,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 2,000 shares of Midi, Inc. for $35 per share. At December 31, 2014 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2014 related to its investment in Midi, Inc. stock? A. ($16,000) B. $10,000 C. ($6,000) D. ($2,000)

D. ($2,000)