Chapter 16

At the end of the first year of operations, the total cost of the trading securities portfolio is $244,000. Total fair value is $250,000. The financial statements should show:

An addition to an asset of $6,000 in the current assets section and an unrealized gain of $6,000 in "Other revenues and gains"

Reporting investments at fair value is:

Applicable to both debt and stock securities

White corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $60 a share. White sold the shares for $40 a share. The entry to record the sale is:

Cash 12,000 Loss on Sale of Stock Investments 6,000 Stock Investments 18,000

On January 1, 2012, Danner Company purchased at face value, a $1, 00, 8% bond that pays interest on January 1 and July 1. Danner Company has a calendar year end. The entry for the receipt of interest on July 1, 2012 is:

Cash 40 Interest Revenue 40

Tan Company had these transactions pertaining to stock investments: Feb. 1 Purchased 3,000 shares of Norton Company (10%) for $49,800 cash plus brokerage fees of $1,200 June 1 received cash dividends of $2 per share on Norton Stock Oct. 1 Sold 1,300 shares of Norton stock for $24,000 loess brokerage fees of $600 The entry to record the sale of the stock would include a:

Credit to Gain on Sale of Stock Investments for $3,000.

If the cost method is used to account for a long-term investment in common stock, dividends received should be:

Credited to the Dividend Revenue account

If the equity method is being used, the revenue from Stock investments account is:

Credited when net income is reported by the investee

Short-term stock investments should be valued on the balance sheet at

Fair value

Corporations invest in other companies for all of the following reasons except to:

Increase trading of the other companies stock

Consolidated financial statements are prepared when a company owns _____ of the common stock of another company.

More than 50%

Short-term investments are securities held by a company that are:

Readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer

Under the equity method of accounting for long-term investments in common stock, when a dividend is received from the investee company,

The Stock Investments creasedaccount is de

If a company acquires 40% common stock interest in another company,

The equity method is usually applicable

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss:

Will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

KEY company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2012 or $61,250. This includes a brokerage commission of $1,250. If Key sells all of its Community bonds for $62,500 and pays $1,599 in brokerage commissions, what gain or loss is recognized?

loss of 250