ACCY 304 Ch. 17

A requirement for a security to be classified as held-to-maturity is

All of these are required

Which of the following is not correct in regard to trading securities?

All of these choices are correct.

Dublin Company holds a 30% stake in Club Company which was purchased in 2021 at a cost of $3,000,000. After applying the equity method, the Investment in Club Company account has a balance of $3,040,000. At December 31, 2021 the fair value of the investment is $3,120,000. Which of the following values is acceptable for Dublin to use in its balance sheet at December 31, 2021? I. $3,000,000 II. $3,040,000 III. $3,120,000

II or III only

Which of the following are considered equity securities? I. Convertible debt II. Redeemable or preferred stock III. Call or put options

III only

Which of the following is correct about the effective-interest method of amortization?

It must be used to amortize a discount or premium unless some other method yields a similar result

Which of the following is not generally correct about recording a sale of debt security before maturity date?

The entry to amortize a premium to the date of sale includes a credit to the Premium on Debt Investments.

T/F A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation

True

Judd, Inc. owns 35% of Cosby Corporation. During the calendar year 2021, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively?

Understate, understate, understate

In accounting for investments in debt securities,

any discount or premium is amortized

Companies that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by simultaneously entering into transactions in two or more markets are called

arbitrageurs

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are

available-for-sale debt securities

Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2021, paying $1,410,375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. 70. For the year ended December 31, 2021, Patton Company should report interest revenue from the Scott Company bonds of:

b. $155,283

96. If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2021 for $430,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been

b. $430,000

84. Instrument Corporation has the following investment which was held throughout 2021-2022: Fair Value Cost 12/31/21 12/31/22 Equity investment $900,000 $1,200,000 $1,140,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2022 related to its investment?

b. $60,000 loss

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment

by using the fair value method

75. On November 1, 2021, Howell Company purchased 1,000 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $1,052,500, which includes accrued interest of $15,000. The bonds, which mature on January 1, 2026, 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, 2021, balance sheet at

c. $1,036,000

103. Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2020 for $1,775,000. During 2021, Gannon had net income of $1,000,000 and paid cash dividends of $250,000. At December 31, 2021, the balance in the investment account should be

c. $2,225,000

95. If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2021 for $350,000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been

c. $350,000

Investments in debt securities are generally recorded at

cost including brokerage and other fees

An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a

debit to Debt Investments

An option to convert a convertible bond into shares of common stock is a(n)

embedded derivative

The accounting for fair value hedges records the derivative at its

fair value

All of the following statements regarding accounting for derivatives are correct except that

gains and losses resulting from speculation should be deferred

A correct valuation for debt securities is

held-to-maturity at amortized cost

Debt securities that are accounted for at amortized cost, not fair value, are

held-to-maturity debt securities

When an investment in a held-to-maturity security is transferred to an available-for-sale debt security, the carrying value assigned to the available-for-sale debt security should be

its fair value at the date of the transfer

When an investment in an available-for-sale debt security is transferred to trading because the company anticipates selling the security in the near future, the carrying value assigned to the investment upon entering it in the trading portfolio should be

its fair value at the date of the transfer

Securities which could be classified as held-to-maturity are

municipal bonds

Gains or losses on cash flow hedges are

recorded in equity, as part of other comprehensive income

All of the following are characteristics of a derivative financial instrument except the instrument

requires a large investment at the inception of the contract

"Gains trading" involves

selling securities whose value has increased since acquisition (winners) while holding those whose value has decreased since acquisition (losers)

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2021, Taylor earns $1,200,000 and pays cash dividends of $960,000. 94. Harrison should report investment revenue for 2021 of

a. $480,000

106. The following information relates to Windom Company for 2021: Realized gain on sale of available-for-sale debt securities $45,000 Unrealized holding gains arising during the period on available-for-sale debt securities 90,000 Reclassification adjustment for gains included in net income 30,000 Windom's 2021 comprehensive income is

b. $105,000

74. On October 1, 2021, Renfro Company purchased to hold to maturity, 4,000, $1,000, 9% bonds for $3,960,000 which includes $60,000 accrued interest. The bonds, which mature on February 1, 2030, 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, 2021 balance sheet at a carrying value of

b. $3,903,000

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2021 for $1,000,000. During 2021, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2022, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2022, Rich sold half of its stock in Doane for $660,000 cash. 113. What should the gain be on sale of this investment in Rich's 2022 income statement?

c. $122,500

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2021. During 2021, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000. 99. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investments (Darby) account on December 31, 2021 should be

c. $600,000

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2021, Penn earns $450,000 and pays cash dividends of $150,000. 105. Tracy should report investment revenue for 2021 of

d. $180,000

T/F Unrealized holding gains and losses are recognized in net income for available-for-sale debt securities

False

Which of the following is not a debt security?

Loans receivable

When a company holds between 20% and 50% of the outstanding stock of the investee, which of the following statements applies?

The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee

T/F All cash dividends received by an investor from the investee decrease the investment's carrying value under the equity method

True

Use of the effective-interest method in amortizing bond premiums and discounts results in

a varying amount being recorded as interest income from period to period

Transfers between categories

are accounted for at fair value for all transfers

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2021, Penn earns $450,000 and pays cash dividends of $150,000. 104. If the beginning balance in the investment account was $900,000, the balance at December 31, 2021 should be

b. $1,020,000

Brown Corporation earns $720,000 and pays cash dividends of $240,000 during 2021. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. 102. How much investment income should Dexter report in 2021?

b. $216,000

98. If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2021 for $440,000 and during 2022 Dobbs Company had net income of $150,000 and paid a cash dividend of $60,000, applying the equity method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2022 of

b. $467,000

Brown Corporation earns $720,000 and pays cash dividends of $240,000 during 2021. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. 101. What amount should Dexter show in the investment account at December 31, 2021 if the beginning of the year balance in the account was $960,000?

c. $1,104,000

On January 3, 2020, Moss Company acquires $500,000 of Adam Company's 10-year, 10% bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. 79. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2021 related to these bonds?

d. $47,698

Impairments are

evaluated using the CECL model similar to receivables

Investments in debt securities should be recorded on the date of acquisition at

fair value plus brokerage fees and other costs incidental to the purchase

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes

a debit to Debt Investments are $15,000

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2021. During 2021, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000. 100. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2021 should be

c. $660,000

The fair value option allows a company to

report most financial instruments at fair value at any point of time

Jordan Company purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for

20 periods and 4% from the present value of 1 table

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair value method - income Equity method - a reduction of the investment

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Fair value method - no effect Equity method - decrease

T/F A company can classify a debt security as held-to-maturity if it has the positive intent to hold the securities to maturity

False

T/F Companies may not use the fair value option for investments that follow the equity method of accounting

False

T/F Debt securities include corporate bonds and convertible debt, but not US government securities

False

T/F Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee

False

T/F If a company transfers held-to-maturity securities to available-for-sale securities, the unrealized gain or loss is recognized in income

False

T/F If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis

False

T/F The Fair Value Adjustment account has a normal credit balance

False

T/F The Unrealized Holding Gain/Loss--Income account for equity securities is reported as a part of other comprehensive income

False

T/F The accounting profession has concluded that an investment of 50 percent or more of the voting stock of an investee should lead to a presumption of only significant influence over an investee

False

T/F Under the fair value method, the investor reports as revenue its share of the net income reported by the investee

False

A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described?

Transfer from available-for-sale to held-to-maturity

T/F A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income

True

T/F Changes in the fair value of a company's available-for-sale debt instruments are included as part of earnings in any given period

True

T/F Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold

True

T/F Companies report trading securities at fair value, with unrealized holding gains and losses reported in net income

True

T/F One requirement related to fair value disclosure is that both the cost and the fair value of all instruments be reported in the notes to the financial statements

True

T/F Significant influence over an investee may be indicated by material intercompany transactions and interchange of managerial personnel

True

T/F Trading securities are securities bought and held primarily for sale in the near term to generate income on short0term price differences

True

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

a reduction of the carrying value of the investment

114. On January 1, 2021, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $1,170,000 at December 31, 2021. Ace reported net income of $700,000 for the year ended December 31, 2021, and paid cash dividends on common stock totaling $280,000 during 2021. How much did Reston pay for its 25% interest in Ace?

a. $1,065,000

76. On November 1, 2021, Horton Company purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $800,000, for $720,000. An additional $24,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2028. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2021 income statement as a result of Horton's available-for-sale investment in Lopez was

a. $14,000

On January 3, 2020, Moss Company acquires $500,000 of Adam Company's 10-year, 10% bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. 80. Assuming that Moss Company uses the straight-line method, what is the amount of premium amortization that would be recognized in 2022 related to these bonds?

a. $3,209

On its December 31, 2020 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment account. There was no change during 2021 in the composition of Calhoun's portfolio of debt investments held as available-for-sale debt securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/21 X $130,000 $160,000 Y 100,000 90,000 Z 175,000 125,000 $405,000 $375,000 90. The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2021 is

a. $40,000

88. During 2020, Woods Company purchased 80,000 shares of Holmes Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2020. Woods sold all of the Holmes stock for $17 per share on December 3, 2021, incurring $56,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2021 of

a. $44,000

Landis Company purchased $3,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $3,124,740 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, 2021 and December 31, 2021 by the amortized premiums of $10,620 and $10,980, respectively. 71. At December 31, 2021, the fair value of the Ritter, Inc. bonds was $3,180,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity?

a. $76,860

73. On August 1, 2021, Fowler Company acquired $500,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2021, and mature on April 30, 2026, 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, 2021?

a. Debt Investments......................................................................... 520,000 Interest Revenue................................................................... 12,500 Cash........................................................................... 532,500

When investments in debt securities are sold between interest payment dates, preferably the

accrued interest is credited to Interest Revenue

Held-to-maturity securities are reported at

acquisition cost plus amortization of a discount

68. Kern Company purchased bonds with a face amount of $1,000,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $15,000, and paid accrued interest for three months of $25,000. The amount to record as the cost of this long-term investment in bonds is

b. $1,035,000

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2021 for $1,000,000. During 2021, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2022, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2022, Rich sold half of its stock in Doane for $660,000 cash. 112. The carrying amount of this investment in Rich's December 31, 2021 balance sheet should be

b. $1,045,000

77. On October 1, 2021, Menke Company purchased to hold to maturity, 500, $1,000, 9% bonds for $520,000. An additional $15,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2025. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2021 income statement from this investment should be

b. $10,050

78. At the end of 2021, Hauke Company purchased 6,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2018 was $5,880,000. The bonds mature on March 1, 2026, and pay interest on March 1 and September 1. Hauke sells 3,000 bonds on September 1, 2022, for $2,964,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is

b. $14,400

115. On December 31, 2020, Patel Company purchased debt securities as trading securities. Pertinent data are as follows: Fair Value Security Cost At 12/31/21 A $132,000 $119,000 B 172,000 186,000 C 288,000 263,000 On December 31, 2021, Patel transferred its investment in security C from trading to available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2021?

b. $24,000 loss

97. If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2021 for $290,000 and during 2022 Dobbs Company had net income of $150,000 and paid a cash dividend of $60,000, applying the fair value method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2022 of

b. $290,000

On its December 31, 2020 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment account. There was no change during 2021 in the composition of Calhoun's portfolio of debt investments held as available-for-sale debt securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/21 X $130,000 $160,000 Y 100,000 90,000 Z 175,000 125,000 $405,000 $375,000 89. What amount of unrealized loss on these debt securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2021?

b. $30,000

91. On January 2, 2021 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2021 Jobs, Inc. reported net income of $1,260,000 and distributed dividends of $540,000. The ending balance in the Investment in Pod Company account at December 31, 2021 was $960,000 after applying the equity method during 2021. What was the purchase price Pod Company paid for its investment in Jobs, Inc?

b. $780,000

Richman Company purchased $1,200,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 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, 2021 and December 31, 2021 by the amortized premiums of $4,248 and $4,392, respectively. 82. At February 1, 2022, Richman Company sold the Carlin bonds for $1,236,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2022 was $1,240,500. 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?

b. ($4,500)

85. At December 31, 2021, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2021?

b. Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss-Income 20,000

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2021 for $1,000,000. During 2021, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2022, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2022, Rich sold half of its stock in Doane for $660,000 cash. 111. Before income taxes, what amount should Rich include in its 2021 income statement as a result of the investment?

c. $120,000

92. Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2020. Sherman Corporation had 100,000 shares of common stock outstanding during 2021, paid cash dividends of $150,000 during 2021, and reported net income of $500,000 for 2021. Ziegler Corporation should report revenue from investment for 2021 in the amount of

c. $125,000

109. At December 31, 2021, Jeter Corporation had the following debt securities that were purchased during 2021, its first year of operation: Fair Unrealized Cost Value Gain (Loss) Trading Securities: Security A $ 85,000 $ 65,000 $(20,000) B 15,000 20,000 5,000 Totals $100,000 $ 85,000 $(15,000) Available-for-Sale Securities: Security Y $ 70,000 $ 80,000 $ 10,000 Z 85,000 55,000 (30,000) Totals $155,000 $135,000 $(20,000) All market declines are considered temporary. Fair value adjustments at December 31, 2021 should be established with a corresponding charge against

c. $15,000 $20,000

86. Kramer Company's equity securities portfolio which is appropriately included in current assets is as follows: December 31, 2021 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $260,000 $215,000 $(45,000) Lyman, Inc. 245,000 265,000 20,000 $505,000 $480,000 $(25,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2021 income statement if 2021 is Kramer's first year of operation?

c. $25,000 loss

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2021, Taylor earns $1,200,000 and pays cash dividends of $960,000. 93. If the beginning balance in the investment account was $750,000, the balance at December 31, 2021 should be

c. $846,000

Landis Company purchased $3,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $3,124,740 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, 2021 and December 31, 2021 by the amortized premiums of $10,620 and $10,980, respectively. 72. At April 1, 2022, Landis Company sold the Ritter bonds for $3,090,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2022 was $3,097,440. 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?

c. ($7,440)

67. On August 1, 2021, Dambro Company acquired 1,200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2027, 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, 2021 is

c. Debt Investments......................................................................... 1,164,000 Interest Revenue................................................................... 27,000 Cash........................................................................... 1,191,000

Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2021, paying $1,410,375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. 69. On July 1, 2021, Patton Company should increase its Debt Investments account for the Scott Company bonds by

d. $2,571

108. Valet Corporation began operations in 2021. An analysis of Valet's debt securities portfolio acquired in 2021 shows the following totals at December 31, 2021 for trading and available-for-sale debt securities: Trading Available-for-Sale Securities Securities Aggregate cost $180,000 $220,000 Aggregate fair value 160,000 190,000 What amount should Valet report in its 2021 income statement for unrealized holding loss?

d. $20,000

Richman Company purchased $1,200,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 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, 2021 and December 31, 2021 by the amortized premiums of $4,248 and $4,392, respectively. 81. At December 31, 2021, the fair value of the Carlin, Inc. bonds was $1,272,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity?

d. $30,744

107. On October 1, 2020, Wenn Company purchased 800 of the $1,000 face value, 8% bonds of Loy, Inc., for $936,000, including accrued interest of $16,000. The bonds, which mature on January 1, 2027, pay interest semiannually on January 1 and July 1. Wenn used the straight-line method of amortization and appropriately recorded the bonds as available-for-sale. On Wenn's December 31, 2021 balance sheet, the carrying value of the bonds is

d. $896,000

83. During 2021 Logic Company purchased 10,000 shares of Midi, Inc. for $30 per share. During the year Logic Company sold 2,500 shares of Midi, Inc. for $35 per share. At December 31, 2021 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of unrealized gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2021 related to its investment in Midi, Inc. stock?

d. ($2,500)

110. On December 29, 2022, James Company sold a debt security that had been purchased on January 4, 2021. James owned no other debt securities. An unrealized holding loss was reported in the 2021 income statement. A realized gain was reported in the 2022 income statement. Was the debt security classified as available-for-sale and did its 2021 market price decline exceed its 2022 market price recovery?

d. No No

87. On its December 31, 2020, balance sheet, Trump Company reported its investment in equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2021, the fair value of the securities was $585,000. What should Trump report on its 2021 income statement as a result of the increase in fair value of the investments in 2021?

d. Unrealized gain of $25,000

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

earnings are reported by the investee in its financial statements

GAAP specifies that, regarding the amortization of a premium or discount on a debt security, the

effective-interest method of allocation should be used but other methods can applied if there is no material difference in the results obtained

If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the

equity method

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must A. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date

make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are

securities where a company has holdings of less than 20%

A reclassification adjustment is reported in the

statement of comprehensive income as other comprehensive income

Unrealized holding gains or losses which are recognized in income are from debt securities classified as

trading