chapter 15 smart book

Which of the following is not a factor that helps determine how to account for investments in securities?

The dollar amount of the investment

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

Which of the following is not a reason that companies make investments?At the beginning of the year, Ryan Co. purchased $25,000 of trading securities. At the end of the year, Ryan determined that fair value of the securities is $30,000. The entry that Ryan will make to reflect this change will include a debit to ___________ and a credit to _________ in the amount of $5,000.

Fair Value Adjustments - Trading; Unrealized Gain - Income

Which of the following is not a reason that companies make investments?

To reduce risk of bankruptcy

Light, Inc. accounts for several long-term investments with a controlling interest. Light, Inc. will report these investments using financial statements.

consolidated

A company sells a trading security costing $1,000 for $1,500 cash. The journal entry to record this transaction will include a (debit/credit) ______ to Gain on Sale of Debt Investments of ______.

credit; $500

Wyatt Co. plans to purchase 2,500 shares of Outer Wear Co., which will represent a 30% ownership. Wyatt would record this transaction with a (debit/credit)_________ to the Equity Method Investments account.

debit

The group of trading securities is reported together as a portfolio at:

fair value

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

Baird Co. owns 1,000 shares of Denver Inc.'s common stock and classifies them as equity investments with insignificant influence. On September 26, Baird received $1,200 of cash dividends from Denver. The journal entry to record this transaction would include a (debit/credit) ___________to Dividend Revenue.

Blank 1: credit

Harris Co. holds a large portion of stock in Lang, Inc. Lang reported net income of $30,000 during the period. Harris will report its 30% of the earnings with a credit to _______ in the amount of _______.

Earnings from Equity Method Investments; $9,000

Blue Co.'s portfolio of trading securities had a total cost of $20,000 and a fair value of $23,500 as of the end of the current year. The journal entry to record the adjustment to fair value includes a debit to:

Fair Value Adjustment -- Trading for $3,500

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

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

Which of the following statements support reasons that companies make investments? Select all that apply.

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

Martin Co. has a portfolio of long-term available-for-sale securities with a cost of $100,000 and a fair value of $125,000. The year-end adjustment includes a credit to _____ for $.

Unrealized Gain -- Equity; 25,000

Blue Co.'s portfolio of trading securities had a total cost of $20,000 and a fair value of $23,500 as of the end of the current year. The journal entry to record the adjustment to fair value includes a credit to:

Unrealized Gain -- Income for $3,500

Rice Co. holds $50,000 of available-for-sale securities. At the end of the year, Rice determined that the fair value of these securities is only $44,000. The entry that Rice will make to reflect this change in value will include a debit to _______ and a credit to _______ in the amount of $6,000.

Unrealized Loss - Equity; Fair-Value Adjustment - Available for Sale

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

Martin Co. has a portfolio of long-term available-for-sale securities with a cost of $100,000 and a fair value of $125,000. The year-end adjustment includes a debit to Unrealized Gain - Equity for $_________.

Blank 1: 25,000

Allen Co. holds a long-term investment with significant influence in Rodney Inc. Rodney paid Allen a $5,000 cash dividend. Allen would record the dividend with a debit to Cash and a credit to______________ ____________________Investments.

Blank 1: Equity Blank 2: Method

At the beginning of the year, Joel Co. purchased $15,000 of trading securities. At the end of the year, Joel determined that fair value of the securities is $18,000. The entry that Joel will make to reflect this change will include a debit to Fair Value Adjustments - Trading and a credit to ________ Gain - Income in the amount of $3,000.

Blank 1: Unrealized

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

Blank 1: available Blank 2: sale

The ______________ method is used to account for long-term investments in equity securities with controlling influence.

Blank 1: consolidated or consolidation

Rex Co. holds a 30% of the shares of stock in Jones, Inc. Jones reported net income of $60,000 during the period. Rex will report its 30% of the earnings with a (debit/credit) _______________ to Earnings from Equity Method Investment in the amount of $___________________.

Blank 1: credit Blank 2: 18000

An equity security with significant influence is sold for $79,000 cash. The cost of the security was $70,000. The entry to record this sale will include a (debit/credit) ___________to Gain on Sale of Stock Investments for $_________.

Blank 1: credit Blank 2: 9000

A company sells a trading security costing $1,000 for $800 cash. The journal entry to record this transaction will include a (debit/credit) __________ to Loss on Sale of Debt Investments of $____________.

Blank 1: debit Blank 2: 200

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 $____________.

Blank 1: debit Blank 2: 20000

The group of trading securities is reported together as a _________ at fair value (the market value that is not yet confirmed by sales).

Blank 1: portfolio

Flora Co. holds $76,000 of equity securities with insignificant influence. At the end of the year, Flora determined that the fair value of these securities is 80,000. The journal entry that Flora will make to reflect this change in value will include the following entries in the amount of $4,000.

Debit to Fair Value Adjustment - Stock Credit to Unrealized Gain - Income

Flora Co. holds $76,000 of available-for-sale securities. At the end of the year, Flora determined that the fair value of these securities is 80,000. The journal entry that Flora will make to reflect this change in value will include the following entries in the amount of $4,000.

Debit to Fair-Value Adjustment - Available for Sale Credit to Unrealized Gain - Equity

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

Alice Co. owns 1,000 shares of Ryder, Inc. and classifies them as an equity investment with insignificant influence. On September 2, Alice received $4,200 of cash dividends from Ryder. The journal entry to record this transaction would include a credit to which account?

Dividend Revenue

The journal entry to purchase 3,000 shares of a company, which represents a significant influence, would be recorded with a debit to the _______ account.

Equity Method Investments

Vera Co. holds a long-term investment with significant influence in Janey's Inc. Janey's paid Vera a $3,000 cash dividend. Vera would record the dividend with a debit to Cash and a credit to:

Equity Method Investments

Rice Co. holds $50,000 of equity securities with insignificant influence. At the end of the year, Rice determined that the fair value of these securities is $54,000. The entry that Rice will make to reflect this change in value will include a debit to _______ and a credit to _______ in the amount of $4,000.

Fair-Value Adjustment - Stock; Unrealized Gain - Income

An equity security with significant influence is sold for $35,000 cash. The cost of the security was $30,000. The journal entry to record this sale will include which of the following credit entries? (Check all that apply.)

Gain on Sale of Stock Investments for $5,000 Equity Method Investments for $30,000

_________ 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