Study Unit 5: Cash and Investments
Day Co. received dividends from its common stock investments during the year ended December 31 as follows:A stock dividend of 400 shares from Parr Corp. on July 25 when the market price of Parr's shares was $20 per share. Day owns less than 1% of Parr's stock.A cash dividend of $15,000 from Lark Corp. in which Day owns a 25% interest. Day did not elect the fair value option to account for its investment in Lark. What amount of dividend revenue should Day report in its income statement? A.$23,000B.$15,000C.$8,000D.$0
D.$0
On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year?A.$900,000B.$950,000C.$1,000,000D.$1,020,000
D.$1,020,000
On January 2 of the current year, Otto Co. purchased 40% of Penn Co.'s outstanding common stock. The carrying amount of Penn's depreciable assets was $1,000,000 on January 2. Penn's depreciable assets had an original useful life of 10 years and a remaining useful life of 5 years. Otto recognized $8,000 amortization for the current year ending December 31 related to its investment in Penn due to the excess of fair value over book value on these assets. What was the fair value of Penn's depreciable assets on January 2 of the current year?A.$100,000B.$900,000C.$1,000,000D.$1,100,000
D.$1,100,000
The following information was extracted from Gil Co.'s December 31 balance sheet:Noncurrent assets: Available-for-sale debt securities (carried at fair value) $96,450 Equity: Accumulated other comprehensive income (OCI) Unrealized holding gains and losses on available-for-sale debt securities (19,800) Historical cost of the available-for-sale debt securities wasA.$63,595B.$76,650C.$96,450D.$116,250
D.$116,250
Pear Co.'s income statement for the year ended December 31, as prepared by Pear's controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes: Equity in earnings of Cinn Co. $ 40,000 Dividends received from Cinn 8,000 Adjustments to profits of prior years for arithmetical errors in depreciation (35,000) Pear owns 40% of Cinn's common stock, and no acquisition differentials are relevant. Pear's December 31 income statement should report income before taxes of A.$85,000B.$117,000C.$120,000D.$152,000
D.$152,000
On July 1, Year 4, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds are classified as held-to-maturity, mature on June 30, Year 14, and pay interest semiannually on June 30 and December 31. Using the interest method, Pell recorded bond discount amortization of $1,800 for the 6 months ended December 31, Year 4. From this long-term investment, Pell should report Year 4 revenue ofA.$16,800B.$18,200C.$20,000D.$21,800
D.$21,800
On October 1, Year 1, Park Co. purchased 200 of the $1,000 face amount, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, Year 8, pay interest semiannually on January 1 and July 1. Park used the straight-line method of amortization and appropriately recorded the bonds as a long-term investment. On Park's December 31, Year 2, balance sheet, the bonds should be reported atA.$215,000B.$214,400C.$214,200D.$212,000
D.$212,000
Chatham Co. owned 25% of the voting stock of Boyrum Co. Chatham applied the equity method to account for this investment. Boyrum reported income of $100,000 and paid $30,000 in cash dividends during the period. What amount should Chatham report as investment income? A.$0B.$7,500C.$17,500D.$25,000
D.$25,000
The following are held by Smite Co.: Cash in checking account $20,000 Cash in bond sinking fund account 30,000 Post-dated check from customer dated 1 month from balance sheet date 250 Petty cash 200 Commercial paper (matures in 2 months) 7,000 Certificate of deposit (matures in 6 months) 5,000 What amount should be reported as cash and cash equivalents on Smite's balance sheet? A.$57,200 B.$32,200 C.$27,450 D.$27,200
D.$27,200
On January 2, Year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod's equity was $500,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by $200,000. Pod reported net income of $100,000 for Year 1, and paid no dividends. Kean accounts for this investment using the equity method. In its December 31, Year 1, balance sheet, what amount should Kean report as investment in Pod Co.?A.$210,000B.$220,000C.$276,000D.$280,000
D.$280,000
The following information pertains to Lark Corp.'s available-for-sale debt securities: December 31 Year 2Year 3Cost$100,000$100,000Fair value90,000120,000Differences between cost and fair values are not due to credit losses. The decline in fair value was properly accounted for at December 31, Year 2. Ignoring tax effects, by what amount should other comprehensive income (OCI) be credited at December 31, Year 3?A.$0B.$10,000C.$20,000D.$30,000
D.$30,000
Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to receiving its bank statement. Reconciliation of the bank statement reveals the following information: Bank service charge - $15 Check deposited and returned for insufficient funds check - $120 Deposit recorded in the general ledger as $258 but should be $285 Checks outstanding - $1,800 After reconciling its bank statement, what amount should Alton report as its cash account balance? A.$30,338 B.$30,392 C.$32,138 D.$32,192
D.$32,192
Dawson Corporation just received its bank statement for the month of May. This statement revealed that $2,500 of Dawson's deposits had not yet been recorded by the bank, outstanding checks totaled $1,500, a bank service charge of $100 had been assessed, and Dawson had erroneously recorded in the books a check written for $1,000 as $100. As of May 31, Dawson's records indicated a cash balance of $40,500. The ending cash balance as of May 31 reported on the bank statement would have been A.$42,500 B.$41,100 C.$39,900 D.$38,500
D.$38,500
Investments classified as held-to-maturity are measured atA.Fair value, with unrealized gains and losses reported in net income.B.Fair value, with unrealized gains and losses reported in other comprehensive income (OCI).C.Replacement cost, with no unrealized gains or losses reported.D.Amortized cost, with no unrealized gains or losses reported.
D.Amortized cost, with no unrealized gains or losses reported.
At the beginning of Year 2, a company invested $40,000 in a debt security. At that time the security was appropriately classified as an available-for-sale security. At the end of Year 2, the security had a fair value of $28,500. The change in fair value is not due to credit losses. How should this change in fair value be reported in the financial statements?A.As a realized loss of $11,500 as part of net income.B.As a realized loss of $11,500 as part of other comprehensive income.C.As an unrealized gain of $11,500 as part of net income.D.As an unrealized loss of $11,500 as part of other comprehensive income.
D.As an unrealized loss of $11,500 as part of other comprehensive income.
Long Co. invested in marketable securities. At year-end, fair-value changes in this investment were included in Long's other comprehensive income. How would Long classify this investment?A.Held-to-maturity securities.B.Trading securities.C.Equity securities.D.Available-for-sale debt securities.
D.Available-for-sale debt securities.
An entity should report an investment in marketable equity securities that does not result in significant influence or control over the investee at A.Lower of cost or market, with holding gains and losses included in earnings. B.Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses. C.Fair value, with holding gains included in earnings only to the extent of previously recognized holding losses. D.Fair value, with holding gains and losses included in earnings.
D.Fair value, with holding gains and losses included in earnings.
An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investor isA.Not affected by its share of the earnings or losses of the investee.B.Not affected by its share of the earnings of the investee, but is decreased by its share of the losses of the investee.C.Increased by its share of the earnings of the investee, but is not affected by its share of the losses of the investee.D.Increased by its share of the earnings of the investee, and is decreased by its share of the losses of the investee.
D.Increased by its share of the earnings of the investee, and is decreased by its share of the losses of the investee.
In Year 5, Lee Co. acquired, at a premium, Enfield, Inc., 10-year bonds as a long-term investment. At December 31, Year 6, Enfield's bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds' fair value?A.Enfield issued a stock dividend.B.Enfield is expected to call the bonds at a premium, which is less than Lee's carrying amount.C.Interest rates have declined since Lee purchased the bonds.D.Interest rates have increased since Lee purchased the bonds.
D.Interest rates have increased since Lee purchased the bonds.
The reporting entity may elect the fair value option (FVO) for A.An investment consisting of more than 50% of the outstanding voting interests of another entity. B.An interest in a variable interest entity (VIE) if the reporting entity is the primary beneficiary. C.Its obligation for pension and other postretirement employee benefits. D.Most financial assets and liabilities.
D.Most financial assets and liabilities.
Goll Co. has a 25% interest in the common stock of Rose Co. and an 18% interest in the common stock of Jave Co. Neither investment gives Goll the ability to exercise significant influence over either company's operating and financial policies. Which of the two investments should Goll account for using the equity method?A.Both Rose and Jave.B.Rose only.C.Jave only.D.Neither Rose nor Jave.
D.Neither Rose nor Jave.
During the current year, Cooley Co. had an unrealized holding gain of $100,000 on a debt investment classified as available-for-sale. Cooley's corporate tax rate is 25%. What amount of the gain should be included in Cooley's net income and other comprehensive income at the end of the current year? Net incomeOther comprehensiveincome A.Net income$100,000Other comprehensive income$0B.Net income$75,000Other comprehensive income$25,000C.Net income$25,000Other comprehensive income$75,000D.Net income$0Other comprehensive income$75,000
D.Net income$0Other comprehensive income$75,000
An investor purchased a bond as a long-term investment on January 2. The investor's carrying amount at the end of the first year will be highest if the bond is purchased at aA.Discount and amortized by the straight-line method.B.Discount and amortized by the effective interest method.C.Premium and amortized by the straight-line method.D.Premium and amortized by the effective interest method.
D.Premium and amortized by the effective interest method.
Debt securities held primarily for sale in the near term to generate income on short-term price differences are known asA.Available-for-sale securities.B.Discontinued operations.C.Held-to-maturity securities.D.Trading securities.
D.Trading securities.
In preparing its August 31 bank reconciliation, Apex Corp. has the following information available: Balance per bank statement, 8/31 $18,050 Deposit in transit, 8/31 3,250 Return of customer's check for insufficient funds, 8/31 600 Outstanding checks, 8/31 2,750 Bank service charges for August 100 At August 31, Apex's cash balance is A.$18,550 B.$17,450 C.$17,850 D.$17,550
A.$18,550
Light Co. had the following bank reconciliation at March 31:Balance per bank statement, 3/31$23,250Add: Deposit in transit5,150$28,400Less: Outstanding checks6,300Balance per books, 3/31$22,100Additional information from Light's bank statement for the month of April is as follows:Deposits$29,200Disbursements24,800All reconciling items at March 31 cleared through the bank in April. Outstanding checks at April 30 totaled $3,200. What is the amount of cash disbursements per books in April? A.$21,700 B.$24,800 C.$27,900 D.$28,000
A.$21,700
Ral Corp.'s checkbook balance on December 31, Year 7, was $5,000. In addition, Ral held the following items in its safe on that date:Check payable to Ral Corp., dated January 2, Year 8, in payment of a sale made in December Year 7, not included in December 31 checkbook balance$2,000Check payable to Ral Corp., deposited December 15 and included in December 31 checkbook balance but returned by Bank on December 30 stamped "NSF." The check was redeposited on January 2, Year 8, and cleared on January 9500 Check drawn on Ral Corp.'s account, payable to a vendor, dated and recorded in Ral's books on December 31, but not mailed until January 10, Year 8300 The proper amount to be shown as cash on Ral's balance sheet at December 31, Year 7, is A.$4,800 B.$5,300 C.$6,500 D.$6,800
A.$4,800
Sun Corp. had investments in trading debt securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them as available-for-sale debt securities on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. The decrease in the fair value of the securities is not due to credit losses. What amount should Sun report as net unrealized loss on available-for-sale securities in its Year 2 other comprehensive income?A.$40,000B.$45,000C.$85,000D.$160,000
A.$40,000
A company has an equity investment with a historical cost of $500,000 that is traded in an active market. On December 31, Year 1, the quoted price for an identical investment was $400,000, and the quoted price for a similar investment was $430,000. Using the company's internal present value of cash flows model, the company arrived at a value of $410,000. What amount is the value of the investment on December 31, Year 1? A.$400,000 B.$410,000 C.$430,000 D.$500,000
A.$400,000
Sun Corp. had investments in trading debt securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them as available-for-sale debt securities on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. The decrease in the fair value of the securities is not due to credit losses. What amount of loss should Sun report in its Year 2 earnings?A.$45,000B.$85,000C.$120,000D.$160,000
A.$45,000
On January 1, Year 1, Purl Corp. purchased as a long-term investment $500,000 face amount of Shaw, Inc.'s 8% bonds for $456,200. The bonds were purchased to yield 10% interest. The bonds mature on January 1, Year 6, and pay interest annually on January 1. Purl uses the effective interest method of amortization. What amount should Purl report on its December 31, Year 2, balance sheet for these held-to-maturity bonds?A.$468,002B.$466,200C.$461,820D.$456,200
A.$468,002
Poe, Inc., had the following bank reconciliation at March 31:Balance per bank statement, 3/31$46,500Add: Deposit in transit10,300$56,800Minus: Outstanding checks(12,600)Balance per books, 3/31$44,200Data per bank for the month of April follow:Deposits$58,400Disbursements49,700All reconciling items at March 31 cleared the bank in April. Outstanding checks at April 30 totaled $7,000. There were no deposits in transit at April 30. What is the cash balance per books at April 30? A.$48,200 B.$52,900 C.$55,200 D.$58,500
A.$48,200
Anchor Co. owns 40% of Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises significant influence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main?A.$75,000B.$80,000C.$120,000D.$225,000
A.$75,000
On January 1, Welling Company purchased 100 of the $1,000 face value, 8%, 10-year bonds of Mann, Inc. The bonds mature on January 1 in 10 years, and pay interest annually on January 1. Welling purchased the bonds to yield 10% interest. Information on present value factors is as follows: Present value of $1 at 8% for 10 periods 0.4632 Present value of $1 at 10% for 10 periods 0.3855 Present value of an annuity of $1 at 8% for 10 periods 6.7101 Present value of an annuity of $1 at 10% for 10 periods 6.1446 How much did Welling pay for the bonds?A.$87,707B.$92,230C.$95,477D.$100,000
A.$87,707
Rune Co.'s checkbook balance on December 31 was $10,000. On that date, Rune held the following items in its safe: $4,000 check payable to Rune, postdated January 3, and not included in the December 31 checkbook balance, in collection of a sale made in December. $1,000 check payable to Rune, deposited December 15 and included in the December 31 checkbook balance, but returned by the bank on December 30 stamped "NSF." The check was redeposited on January 2, and cleared on January 9. What amount should Rune report as cash in its December 31 balance sheet? A.$9,000 B.$10,000 C.$13,000 D.$14,000
A.$9,000
On July 1, Year 2, York Co. purchased as a long-term investment $1 million of Park, Inc.'s 8% bonds for $946,000, including accrued interest of $40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, Year 8, and pay interest annually on January 1. York uses the effective interest method of amortization. In its December 31, Year 2, balance sheet, what amount should York report as investment in bonds?A.$911,300B.$916,600C.$953,300D.$960,600
A.$911,300
When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizesA.A proportionate interest in the net income of the investee.B.A cash dividend received from the investee.C.Periodic amortization of the goodwill related to the purchase.D.Depreciation related to the excess of fair value over the carrying amount of the investee's depreciable assets at the date of purchase by the investor.
A.A proportionate interest in the net income of the investee.
Under the measurement alternative for an investment in equity securities, the investment is measured at A.Cost minus subsequent impairment, plus or minus changes resulting from observable price changes for the identical or a similar investment of the same issuer. B.Fair value minus subsequent impairment. C.Lower of cost or net realizable value. D.Amortized cost.
A.Cost minus subsequent impairment, plus or minus changes resulting from observable price changes for the identical or a similar investment of the same issuer.
Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment balance if it uses the fair value method or the equity method of accounting? Fair ValueEquity A.Fair ValueNoEquityNoB.Fair ValueYesEquityYesC.Fair ValueYesEquityNoD.Fair ValueNoEquityYes
A.Fair ValueNoEquityNo
A measurement alternative may be elected for an investment in equity securities if the A.Fair value of the investment is not readily determinable and the investment does not result in control or significant influence over the investee. B.Investment allows significant influence over the investee. C.Listed prices of the investment are not available and the investment allows control over the investee. D.Listed prices of the investment are available and the investment does not result in control or significant influence over the investee.
A.Fair value of the investment is not readily determinable and the investment does not result in control or significant influence over the investee.
On September 1, the Consul Company acquired $10,000 face value, 8% bonds of Envoy Corporation at 104. The bonds were dated May 1 and mature in 5 years on April 30, with interest payable each October 31 and April 30. What entry should Consul make to record the purchase of the bonds?A.Investment in bonds $10,400Interest receivable266Cash$10,666B.Investment in bonds $10,666Cash$10,666C.Investment in bonds$10,666Accrued interest receivable $ 266Cash10,400D.Investment in bonds $10,000Premium on bonds666Cash$10,666
A.Investment in bonds $10,400Interest receivable266Cash$10,666
The decision to elect the fair value option (FVO) A.Is irrevocable until the next election date, if any. B.May be applied to a portion of a financial instrument. C.Must be applied only to classes of financial instruments. D.Must be applied to all instruments issued in a single transaction.
A.Is irrevocable until the next election date, if any.
A company leases trucks and properly classifies the leases as finance leases. The leases have a 10-year term, and the lease calculations were done 3 years ago when interest rates were lower. Which of the following is the appropriate accounting treatment, if any, for the application of the fair value option to lease transactions? A.Leases are not eligible for the fair value option. B.Recognize the change to fair value accounting with a cumulative adjustment to beginning retained earnings. C.Recognize the change to fair value accounting with an unrealized loss in the income statement. D.Recognize the change to fair value accounting with an unrealized loss in accumulated other comprehensive income.
A.Leases are not eligible for the fair value option.
For an available-for-sale security transferred into the trading category, the portion of the unrealized holding gain or loss at the date of the transfer that has not been previously recognized in earnings shall beA.Recognized in earnings immediately.B.Amortized over the period to date of sale.C.Transferred to other comprehensive earnings.D.Deferred and recognized when the security is sold.
A.Recognized in earnings immediately.
Which of the following is a false statement about the measurement alternative for an investment in equity securities that does not result in control or significant influence over the investee? A.The investment is measured at fair value through net income. B.If the measurement alternative is selected, it must be applied until the investment has a readily determinable fair value. C.The measurement alternative cannot be elected when the fair value of the investment is readily determinable. D.Under the measurement alternative, an impairment loss is recognized for the excess of the carrying amount of the investment over its fair value.
A.The investment is measured at fair value through net income.
At October 31, Dingo, Inc., had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo's October 31 classified balance sheet? A.The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. B.The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability. C.The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft. D.The segregated and regular accounts should be reported as current assets net of the overdraft.
A.The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
Mint Co.'s cash balance in its balance sheet is $1,300,000, of which $300,000 is identified as a compensating balance. In addition, Mint has classified cash of $250,000 that has been restricted for future expansion plans as "other assets." Which of the following should Mint disclose in notes to its financial statements? Compensating Restricted balance cash A.Yes Yes B.Yes No C.No Yes D.No No
A.Yes Yes
Dodd Co.'s debt securities at December 31 included available-for-sale securities with a cost basis of $24,000 and a fair value of $30,000. Dodd's income tax rate was 20%. What amount of unrealized gain or loss should Dodd recognize in its income statement at December 31?A.$6,000 loss.B.$0.C.$4,800 gain.D.$6,000 gain.
B.$0.
The following information pertains to Grey Co. at December 31, Year 4: Checkbook balance $12,000 Bank statement balance 16,000 Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/Yr 4 but not mailed until 1/10/Yr 51,800 On Grey's December 31, Year 4, balance sheet, what amount should be reported as cash? A.$12,000 B.$13,800 C.$14,200 D.$16,000
B.$13,800
On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share but did not elect the fair value option. On December 15, Year 1, Eagle paid $40,000 in dividends to its common shareholders. Eagle's net income for the year ended December 31, Year 1, was $120,000, earned evenly throughout the year. In its Year 1 income statement, what amount of income from this investment should Denver report?A.$36,000B.$18,000C.$12,000D.$6,000
B.$18,000
Janson traded stock in Flax Co. marketable equity securities during Year 1 as follows:Number of sharespurchased (sold)Price pershareFebruary 3, Year 11,100$11April 15, Year 12,5009May 28, Year 1(750)13July 5, Year 11,40012September 30, Year 1(4,000)15No other transactions took place for Flax during the remainder of the year. At December 31, Year 1, Flax is trading at $10 per share. Janson trades securities on a last in, first out basis. What amount is the net value of the investment in Flax at year end? A.$(250) B.$2,500 C.$2,750 D.$3,750
B.$2,500
Birk Co. purchased 30% of Sled Co.'s outstanding common stock on December 31 for $200,000. On that date, Sled's equity was $500,000, and the fair value of its net assets was $600,000. On December 31, what amount of equity method goodwill results from this acquisition?A.$0B.$20,000C.$30,000D.$50,000
B.$20,000
Grant, Inc., acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South's net assets. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. In Grant's December 31, Year 1, balance sheet, what should be the carrying amount of this investment?A.$200,000B.$209,000C.$224,000D.$230,000
B.$209,000
Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds?A.$12,000B.$22,000C.$24,000D.$26,000
B.$22,000
Grant, Inc., acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South's net assets. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. Before income taxes, what amount should Grant include in its Year 1 income statement as a result of the investment?A.$15,000B.$24,000C.$50,000D.$80,000
B.$24,000
On January 2, Year 4, Early Co. purchased as a short-term investment a $1 million face amount Thomas Co. 8% bond for $910,000 to yield 10%. The bonds mature on January 1, Year 11, and pay interest annually on January 1. On December 31, Year 4, the bonds had a fair value of $945,000. On February 13, Year 5, Early sold the bonds for $920,000. In its December 31, Year 4, income statement, what amount should Early report in earnings as a gain or loss on the bond (disregarding interest), if it elected the fair value option (FVO) on January 2, Year 4? A.$35,000 B.$24,000 C.$(1,000) D.$0
B.$24,000
Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14 and did not elect the fair value option. Plack received a stock dividend of 2,000 shares on April 30, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15. In its income statement for the year, what amount should Plack report as dividend income? A.$20,000 B.$24,000 C.$90,000 D.$94,000
B.$24,000
Star Corp. had the following accounts and balances in its general ledger as of December 31:Petty cash$ 500XYZ Bank -- checking account20,000Marketable equity security10,000Marketable debt security7,500ABC Bank -- depository account5,000What amount should Star report as cash and cash equivalents in the balance sheet as of December 31? A.$25,000 B.$25,500 C.$35,000 D.$42,500
B.$25,500
On December 31, Ott Co. had investments in equity securities as follows: Fair CostValueMan Co.$10,000$ 8,000Kemo, Inc.9,00011,000Fenn Corp.11,0009,000$30,000$28,000Ott's December 31 balance sheet should report the equity securities as A.$26,000 B.$28,000 C.$29,000 D.$30,000
B.$28,000
Grant, Inc., acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South's net assets. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. In its Year 2 income statement, what amount should Grant report as gain from the sale of half of its investment?A.$24,500B.$30,500C.$35,000D.$45,500
B.$30,500
Sage, Inc., bought 40% of Adams Corp.'s outstanding voting common stock on January 2 for $400,000, which equaled a proportionate share of the fair value of the net assets. The carrying amount of the net assets at the purchase date was $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during the year. During the year, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31?A.$48,000B.$42,000C.$36,000D.$34,000
B.$42,000
On January 2, Well Co. purchased 10% of Rea, Inc.'s outstanding common shares for $400,000, which equaled the carrying amount and the fair value of the interest purchased in Rea's net assets. Well did not elect the fair value option. Because Well is the largest single shareholder in Rea, and Well's officers are a majority on Rea's board of directors, Well exercises significant influence over Rea. Rea reported net income of $500,000 for the year and paid dividends of $150,000. In its December 31 balance sheet, what amount should Well report as investment in Rea? A.$450,000 B.$435,000 C.$400,000 D.$385,000
B.$435,000
At the beginning of the fiscal year, End Corp. purchased 25% of Turf Co. for $550,000. At the end of the fiscal year, Turf reported net income of $65,000 and declared and paid cash dividends of $30,000. End uses the equity method of accounting. At year end, what amount should End report in its balance sheet for the investment in Turf?A.$550,000B.$558,750C.$566,250D.$573,750
B.$558,750
On January 1, Jennie Corporation purchased 30% of the common stock of Katlee Company for $500,000. The following information relates to Katlee at the date of acquisition. Cash $ 50,000 Accounts receivable (net) 250,000 Building (net) 700,000 Land 100,000 Liabilities 100,000 Additional information relating to the purchase appears below. Jennie has the ability to exercise significant influence over Katlee and did not elect the fair value option. Both the carrying amount and the fair value are the same for receivables, land, and liabilities. The fair value of the building is $900,000. Jennie depreciates its assets on a straight-line basis. Both tangible and intangible assets are amortized over 10 years. For the current year, Katlee had net income of $400,000 and declared and paid dividends of $100,000. What amount should Jennie report for its investment in Katlee at the end of the current year?A.$500,000B.$584,000C.$600,000D.$620,000
B.$584,000
On December 1, Wall Company purchased trading debt securities. Pertinent data are as follows: DebtSecurityCost Fair Valueat 12/31 A$39,000$36,000B50,00055,000C96,00085,000On December 31, Wall reclassified its investment in security C from trading to available-for-sale because Wall intends to retain security C. What net loss on its securities should be included in Wall's income statement for the year ended December 31?A.$0B.$9,000C.$11,000D.$14,000
B.$9,000
At June 30, Almond Co.'s cash balance was $10,012 before adjustments, while its ending bank statement balance was $10,772. Check number 101 was issued June 2 in the amount of $95, but was erroneously recorded in Almond's general ledger balance as $59. The check was correctly listed in the bank statement at $95. The bank statement also included a credit memo for interest earned in the amount of $35, and a debit memo for monthly service charges in the amount of $50. What was Almond's adjusted cash balance at June 30? A.$9,598 B.$9,961 C.$10,048 D.$10,462
B.$9,961
On January 1, Point, Inc., purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1. During October, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's income statement report?A.10% of Iona's income for January 1 to July 31 plus 40% of Iona's income for August 1 to December 31.B.40% of Iona's income for August 1 to December 31.C.40% of Iona's full-year income.D.Amount equal to dividends received from Iona.
B.40% of Iona's income for August 1 to December 31.
Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these bonds atA.Cost.B.Amortized cost.C.Fair value.D.Lower of cost or market.
B.Amortized cost.
An investor uses the equity method to account for an investment in common stock. The investor's equity in the earnings of the investee is affected by Cash Dividendsfrom Investee A Change in FairValue of the Investee'sCommon Stock A.Cash Dividends from InvesteeNoA Change in Fair Value of the Investee's Common StockYesB.Cash Dividends from InvesteeNoA Change in Fair Value of the Investee's Common StockNoC.Cash Dividends from InvesteeYesA Change in Fair Value of the Investee's Common StockNoD.Cash Dividends from InvesteeYesA Change in Fair Value of the Investee's Common StockYes
B.Cash Dividends from InvesteeNoA Change in Fair Value of the Investee's Common StockNo
An investor purchased a bond classified as a long-term investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than the Cash Paidto SellerFace Amountof Bond A.Cash Paid to SellerNoFace Amount of BondYesB.Cash Paid to SellerNoFace Amount of BondNoC.Cash Paid to SellerYesFace Amount of BondNoD.Cash Paid to SellerYesFace Amount of BondYes
B.Cash Paid to SellerNoFace Amount of BondNo
On December 31, a company has the following bank accounts and corresponding cash balances:California BankOperating -- Summit Ridge$(400,000)Operating -- Bakersville300,000Operating -- Smithville50,000Savings500,000Sedona BankChecking$(375,000)How should the company report the above bank account balances in the balance sheet at December 31? A.Cash of $75,000. B.Cash of $450,000 and a liability of $375,000. C.Cash of $850,000 and a liability of $775,000. D.Cash of $800,000 and a liability of $725,000.
B.Cash of $450,000 and a liability of $375,000.
When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be measured at the end of the year, given no election of the fair value option? Debt Securities Classified As Held-to-MaturityAvailable-for-Sale A.Debt Securities Classified As Held-to-MaturityAmortized costAvailable-for-SaleAmortized costB.Debt Securities Classified As Held-to-MaturityAmortized costAvailable-for-SaleFair valueC.Debt Securities Classified As Held-to-MaturityFair valueAvailable-for-SaleFair valueD.Debt Securities Classified As Held-to-MaturityFair valueAvailable-for-SaleAmortized cost
B.Debt Securities Classified As Held-to-MaturityAmortized costAvailable-for-SaleFair value
Beach Co. determined that the decline in the fair value (FV) of an investment in debt securities was below the amortized cost and due to credit losses. The investment was classified as available-for-sale on Beach's books. The controller would properly record the decrease in FV by including it in which of the following? A.Other comprehensive income section of the income statement only.B.Earnings section of the income statement and writing down the amortized cost basis to FV.C.Discontinued operations section of the income statement, net of tax, and writing down the amortized cost basis to FV.D.Other comprehensive income section of the income statement, and writing down the amortized cost basis to FV.
B.Earnings section of the income statement and writing down the amortized cost basis to FV.
At December 31, Hull Corp. had the following debt securities that were purchased during the year, its first year of operations: Fair Unrealized Cost value gain (loss) In Current Assets: Security A $ 90,000 $ 60,000 $(30,000) Security B 15,000 20,000 5,000 Totals $105,000 $ 80,000 $(25,000) In Noncurrent Assets: Security Y $ 70,000 $ 80,000 $ 10,000 Security Z 90,000 45,000 (45,000) Totals $160,000 $125,000 $(35,000) All changes in fair value are not due to credit losses. Security A is a trading security, and the other securities are available-for-sale debt securities. What amounts should be charged to earnings and other comprehensive income at December 31? Earnings Other ComprehensiveIncome A.Earnings$(60,000)Other Comprehensive Income$0B.Earnings$(30,000)Other Comprehensive Income$(30,000)C.Earnings$(25,000)Other Comprehensive Income$(30,000)D.Earnings$(25,000)Other Comprehensive Income$0
B.Earnings$(30,000)Other Comprehensive Income$(30,000)
An available-for-sale debt security was purchased on September 1, Year 4, between interest dates. The next interest payment date was February 1, Year 5. Because of a decline in fair value, the cost of the debt security substantially exceeded its fair value at December 31, Year 4. On the balance sheet at December 31, Year 4, the debt security should be carried atA.Fair value plus the accrued interest paid.B.Fair value.C.Cost plus the accrued interest paid.D.Cost.
B.Fair value.
On December 15, Year 4, Far-Lap Co. paid $200,000 cash for 40% of the outstanding common shares of Dunwunder, Inc. On that date, Far-Lap intended to sell all of these shares soon after the close of its fiscal year on December 31, Year 4. Far-Lap's equity stake permitted it to exercise significant influence over Dunwunder. For the period March 1 through December 15, Year 4, Dunwunder reported $5,600 in net income. Which of the following is the best reason for Far-Lap not to use the equity method to account for its investment in Dunwunder?A.Far-Lap's equity stake is only 40%.B.Far-Lap classified the investment as held for sale.C.Far-Lap held no previous equity stake in Dunwunder before the purchase date.D.The purchase did not result in recognition of goodwill.
B.Far-Lap classified the investment as held for sale.
Which one of the following statements with regard to marketable securities is incorrect?A.In the portfolio of marketable equity securities, unrealized gains and losses are recorded on the income statement.B.In the available-for-sale portfolio of marketable debt securities, unrealized gains are recorded on the income statement.C.The held-to-maturity portfolio consists only of debt securities.D.Debt securities may be transferred from the held-to-maturity to the available-for-sale portfolio.
B.In the available-for-sale portfolio of marketable debt securities, unrealized gains are recorded on the income statement.
Vanity Corporation holds investments in debt securities. These investments were acquired last year and have been properly classified as available-for-sale (AFS) securities. During the current year, the company sold some of the AFS securities at a loss. At year end, the remaining portfolio of AFS securities had appreciated in total value compared with the value at the end of last year. Based on these facts, which one of the following should Vanity report in its financial statements at the end of the current year? Income StatementBalance sheetA.Income StatementUnrealized loss on sale of AFS securitiesBalance sheetUnrealized holding gain on appreciation of AFS securitiesB.Income StatementRealized loss on sale of AFS securitiesBalance sheetUnrealized holding gain on appreciation of AFS securitiesC.Income StatementUnrealized holding gain on appreciation of AFS securitiesBalance sheetUnrealized loss on sale of AFS securities.D.Income StatementRealized loss on sale of AFS securities and unrealized holding gain on appreciation of AFS securitiesBalance sheetUnrealized holding gains/losses not reported here on AFS securities
B.Income StatementRealized loss on sale of AFS securitiesBalance sheetUnrealized holding gain on appreciation of AFS securities
Unrealized gains and losses on trading debt securities should be presented in the A.Statement of financial position.B.Income statement.C.Notes to the financial statements.D.Statement of retained earnings.
B.Income statement.
When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following criteria? A.A portion of an asset or liability. B.Instrument-by-instrument basis. C.Type-by-type basis. D.At the entity level.
B.Instrument-by-instrument basis.
Park Co. uses the equity method to account for its January 1 purchase of Tun, Inc.'s common stock. On January 1, the fair values of Tun's FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park's reported equity in Tun's earnings for the year? Inventory ExcessLand Excess A.Inventory ExcessDecreaseLand ExcessDecrease B.Inventory ExcessDecreaseLand ExcessNo effect C.Inventory ExcessIncreaseLand ExcessIncrease D.Inventory ExcessIncreaseLand ExcessNo effect
B.Inventory ExcessDecreaseLand ExcessNo effect
On both December 31, Year 1, and December 31, Year 2, Kopp Co.'s only available-for-sale debt security had the same fair value, which was below amortized cost. In Year 1, Kopp expected to collect all the cash flows from the debt security. However, in Year 2, the decline in the fair value is due to credit losses. At the end of both years the security was classified as a noncurrent asset. What should be the effects of the determination that the decline was due to credit losses on Kopp's Year 2 net noncurrent assets and net income?A.No effect on both net noncurrent assets and net income.B.No effect on net noncurrent assets and decrease in net income.C.Decrease in net noncurrent assets and no effect on net income.D.Decrease in both net noncurrent assets and net income.
B.No effect on net noncurrent assets and decrease in net income.
Election of the fair value option (FVO) for financial assets A.Permits only for-profit entities to measure eligible items at fair value. B.Results in recognition of unrealized gains and losses in earnings of a business entity. C.Requires deferral of related upfront costs. D.Results in recognition of unrealized gains and losses in other comprehensive income of a business entity.
B.Results in recognition of unrealized gains and losses in earnings of a business entity.
In Year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available-for-sale debt securities. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following?A.The unrealized loss should be credited to the investment account.B.The unrealized loss should be credited to the other comprehensive income account.C.The unrealized loss should be debited to the other comprehensive income account.D.The unrealized loss should be credited to beginning retained earnings.
B.The unrealized loss should be credited to the other comprehensive income account.
On July 1, Year 1, Cody Co. paid $1,198,000 for 10%, 20-year bonds with a face amount of $1 million. Interest is paid on December 31 and June 30. The bonds were purchased to yield 8%. Cody uses the effective interest rate method to recognize interest income from this investment. The bonds are properly classified as held-to-maturity. What should be reported as the carrying amount of the bonds in Cody's December 31, Year 1, balance sheet?A.$1,207,900B.$1,198,000C.$1,195,920D.$1,193,050
C.$1,195,920
Cook Co. had the following balances at December 31, Year 1:Cash in checking account$350,000Cash in money-market account250,000U.S. Treasury bill, purchased 12/1/Yr 1,maturing 2/28/Yr 2800,000U.S. Treasury bond, purchased 3/1/Yr 1,maturing 2/28/Yr 2500,000Cook's policy is to treat as cash equivalents all highly liquid investments with a maturity of 3 months or less when purchased. What amount should Cook report as cash and cash equivalents in its December 31, Year 1, balance sheet? A.$600,000 B.$1,150,000 C.$1,400,000 D.$1,900,000
C.$1,400,000
On January 1, Jennie Corporation purchased 30% of the common stock of Katlee Company for $500,000. The following information relates to Katlee at the date of acquisition. Cash $ 50,000 Accounts receivable (net) 250,000 Building (net) 700,000 Land 100,000 Liabilities 100,000 Additional information relating to the purchase appears below. Jennie has the ability to exercise significant influence over Katlee and did not elect the fair value option. Both the carrying amount and the fair value are the same for receivables, land, and liabilities. The fair value of the building is $900,000. Jennie depreciates its assets on a straight-line basis. Both tangible and intangible assets are amortized over 10 years. For the current year, Katlee had net income of $400,000 and declared and paid dividends of $100,000. The amount of equity method goodwill related to Jennie's acquisition of Katlee at January 1 wasA.$0B.$60,000C.$140,000D.$200,000
C.$140,000
Smith Co. has a checking account at Small Bank and an interest-bearing savings account at Big Bank. On December 31, Year 1, the bank reconciliations for Smith are as follows:Big BankBank balance$150,000Deposit in transit5,000Book balance155,000Small BankBank balance$1,500Outstanding checks(8,500)Book balance(7,000)What amount should be classified as cash on Smith's balance sheet at December 31, Year 1? A.$148,000 B.$151,500 C.$155,000 D.$156,500
C.$155,000
On January 1, Year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of Newman Corp.'s outstanding voting stock. For Year 1, Newman reported net income of $60,000 and paid dividends of $20,000. At year end, the fair value of Peabody's investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize in net income for Year 1 attributable to the investment? A.$6,000 B.$10,000 C.$16,000 D.$18,000
C.$16,000
Johnstone Company owns 10,000 shares of Breva Corporation's stock; Breva currently has 40,000 shares outstanding. During the year, Breva had net income of $200,000 and paid $160,000 in dividends. At the beginning of the year, there was a balance of $150,000 in Johnstone's equity method investment in Breva Corporation account. At the end of the year, the balance in this account should beA.$110,000B.$150,000C.$160,000D.$240,000
C.$160,000
Burr Company had the following account balances at December 31, Year 1: Cash in banks $2,250,000 Cash on hand 125,000 Cash legally restricted for additions to plant (expected to be disbursed in Year 2) 1,600,000 Cash in banks includes $600,000 of compensating balances related to short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr's December 31, Year 1, balance sheet, total cash should be reported at A.$1,775,000 B.$2,250,000 C.$2,375,000 D.$3,975,000
C.$2,375,000
During Year 6, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500. They represent 2% of ownership in Hemp Corp. The fair value of this investment was $29,500 at December 31, Year 6. Wall sold all of the Hemp common stock for $14 per share on December 15, Year 7, incurring $1,400 in brokerage commissions and taxes. In its income statement for the year ended December 31, Year 7, Wall should report a recognized loss of A.$4,900 B.$3,500 C.$2,900 D.$1,500
C.$2,900
The following pertains to Smoke, Inc.'s investment in debt securities:On December 31, Year 3, Smoke reclassified a security acquired during the year for $70,000. It had a $50,000 fair value when it was reclassified from trading to available-for-sale.An available-for-sale security costing $75,000, written down to $30,000 in Year 2 had a $60,000 fair value on December 31, Year 3. The changes in the fair value of the security are not due to credit losses. What is the net effect of the above items on Smoke's net income for the year ended December 31, Year 3? A.No effect.B.$10,000 increase.C.$20,000 decrease.D.$30,000 increase.
C.$20,000 decrease
At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 $175,000 Checking account #201 (10,000) Money market account 25,000 90-day certificate of deposit due 2/28/Year 250,000 180-day certificate of deposit due 3/15/Year 280,000 Kale classifies investments with original maturities of 3 months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents? A.$190,000 B.$200,000 C.$240,000 D.$320,000
C.$240,000
Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years and has the ability to exercise significant influence over Devon. The following information relates to Larkin's investment in Devon during the most recent year: Carrying amount of Larkin's investment in Devon at the beginning of the year $200,000 Net income of Devon for the year 600,000 Total dividends paid to Devon's stockholders during the year 400,000 What is the carrying amount of Larkin's investment in Devon at year end?A.$100,000B.$200,000C.$250,000D.$350,000
C.$250,000
Inch Co. had the following balances at December 31, Year 4: Cash in checking account $ 35,000 Cash in money market account 75,000 U.S. Treasury bill, purchased 12/1/Yr 4, maturing 2/28/Yr 5 200,000 U.S. Treasury bill, purchased 12/1/Yr 3, maturing 5/31/Yr 5 150,000 Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of 3 months or less when purchased. What amount should Inch report as cash and cash equivalents in its December 31, Year 4, balance sheet? A.$110,000 B.$235,000 C.$310,000 D.$460,000
C.$310,000
In preparing its bank reconciliation at December 31, Case Company has the following data available: Balance per bank statement, 12/31$38,075 Deposit in transit, 12/315,200 Outstanding checks, 12/316,750 Amount erroneously credited by bank to Case's account, 12/28400 Bank service charges for December75 Case's adjusted cash in bank balance at December 31 is A.$36,525 B.$36,450 C.$36,125 D.$36,050
C.$36,125
Snart Co. had the following balances at December 31, Year 4:Cash in checking account$ 35,000Cash in money market account75,000U.S. Treasury bill, purchased 11/1/Yr 4, maturing 1/31/Yr 5350,000U.S. Treasury bill, purchased 12/1/Yr 4, maturing 3/31/Yr 5400,000Snart's policy is to treat as cash equivalents all highly liquid investments with a maturity of 3 months or less when purchased. What amount should Snart report as cash and cash equivalents in its December 31, Year 4, balance sheet? A.$110,000 B.$385,000 C.$460,000 D.$860,000
C.$460,000
Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:Bank service charge$ 10Insufficient funds check650Checks outstanding1,500Deposits in transit350Check deposited by Hilltop and cleared by the bank for $125, but improperly recorded by Hilltop as $152What is the net cash balance after the reconciliation? A.$52,363 B.$53,023 C.$53,050 D.$53,077
C.$53,050
Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations and uses the equity method to account for the investment in the common stock. What amount of dividend revenue should Green report in its income statement for the year ended December 31, Year 1?A.$0B.$30,000C.$60,000D.$90,000
C.$60,000
On January 1, Dyer Co. acquired as a long-term investment a 20% common stock interest in Eason Co. Dyer paid $700,000 for this investment when the fair value and carrying amount of Eason's net assets was $3.5 million. Dyer can exercise significant influence over Eason's operating and financial policies. For the year ended December 31, Eason reported net income of $400,000 and declared and paid cash dividends of $160,000. How much revenue from this investment should Dyer report the year?A.$32,000B.$48,000C.$80,000D.$112,000
C.$80,000
On July 2, Year 4, Wynn, Inc., purchased as a short-term investment a $1 million face-value Kean Co. 8% bond for $910,000 plus accrued interest to yield 10%. The bonds mature on January 1, Year 11, and pay interest annually on January 1. On December 31, Year 4, the bonds had a fair value of $945,000. On February 13, Year 5, Wynn sold the bonds for $920,000. In its December 31, Year 4, balance sheet, what amount should Wynn report for the bond if it is classified as an available-for-sale security? A.$910,000B.$920,000C.$945,000D.$950,000
C.$945,000
The equity method would be used if a company owned what percentage of its investee company's stock? A.5%B.15%C.25%D.75%
C.25%
When the equity method is used to account for investments in common stock, which of the following affects the investor's reported investment income? Goodwill Amortization Relatedto the PurchaseCash Dividendsfrom Investee A.Goodwill Amortization Related to the PurchaseYesCash Dividends from InvesteeYesB.Goodwill Amortization Related to the PurchaseNoCash Dividends from InvesteeYesC.Goodwill Amortization Related to the PurchaseNoCash Dividends from InvesteeNoD.Goodwill Amortization Related to the PurchaseYesCash Dividends from InvesteeNo
C.Goodwill Amortization Related to the PurchaseNoCash Dividends from InvesteeNo
For available-for-sale debt securities acquired during Year 1, which of the following amounts should be included in the period's net income?Impairment for credit losses during the periodRealized gains during the periodIncrease in fair value during the periodA.III only.B.II only.C.I and II only.D.I, II, and III.
C.I and II only.
During Year 3, Gilman Co. purchased 5,000 shares of the 500,000 outstanding shares of Meteor Corp.'s common stock for $35,000. During Year 3, Gilman received $1,800 of dividends from its investment in Meteor's stock. The fair value of Gilman's investment on December 31, Year 3, is $32,000. Gilman has elected the fair value option for this investment. What amount of income or loss that is attributable to the Meteor stock investment should be reflected in Gilman's earnings for Year 3? A.Income of $4,800. B.Income of $1,800. C.Loss of $1,200. D.Loss of $3,000.
C.Loss of $1,200.
During Year 3, Gut Co. purchased 1,000 shares of the 400,000 outstanding shares of Man Corp.'s common stock for $40,000. During Year 3, Gut received $900 of dividends from its investment in Man's stock. The fair value of Gut's investment on December 31, Year 3, is $35,000. Gut has elected the fair value option for this investment. What amount of income or loss that is attributable to the Man stock investment should be reflected in Gut's earnings for Year 3? A.Income of $5,900. B.Income of $900. C.Loss of $4,100. D.Loss of $5,000.
C.Loss of $4,100.
Companies A and B begin with identical account balances, and their revenues and expenses for the year are identical in amount except that Company A has a higher ratio of cash to noncash expenses. If the cash balances of both companies increase as a result of operations (no financing or dividends), the ending cash balance of Company A as compared to that of Company B will be A.Higher. B.The same. C.Lower. D.Indeterminate from the information given.
C.Lower.
An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the cash paid to the seller isA.The same as the face amount of the bond.B.The same as the face amount of the bond plus accrued interest.C.More than the face amount of the bond.D.Less than the face amount of the bond.
C.More than the face amount of the bond.
Jay Company acquired a wholly owned foreign subsidiary on January 1. The equity section of the December 31 consolidated balance sheet follows:Common stock$ 500,000Additional paid-in capital200,000Retained earnings900,000Accumulated other comprehensive income(600,000)Total equity$1,000,000The balance in accumulated OCI appropriately represents adjustments in translating the foreign subsidiary's financial statements into U.S. dollars. The consolidated income statement included the excess of cost of investments in certain debt and equity securities over their fair values, which is not due to credit losses, as follows: Available-for-sale debt securities $200,000 Equity securities 100,000 Ignoring tax effects, the amounts for retained earnings and accumulated OCI in the consolidated statement of financial position for the year ended December 31 are Retained EarningsAccumulated OCI A.Retained Earnings$900,000Accumulated OCI$(600,000)B.Retained Earnings$1,000,000Accumulated OCI$(700,000)C.Retained Earnings$1,100,000Accumulated OCI$(800,000)D.Retained Earnings$1,200,000Accumulated OCI$(900,000)
C.Retained Earnings$1,100,000Accumulated OCI$(800,000)
A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?A.The names and ownership percentages of the other stockholders in the investee company.B.The reason for the company's decision to invest in the investee company.C.The company's accounting policy for the investment.D.Whether the investee company is involved in any litigation.
C.The company's accounting policy for the investment.
Reed, Inc., began operations on January 1. The following information pertains to Reed's December 31 investments in debt securities: TradingAvailable-for-SaleHistorical cost$360,000$550,000Fair value320,000450,000Amortized cost304,000420,000What amounts should Reed report for its trading and available-for-sale debt securities in the assets section of its December 31 balance sheet? TradingAvailable-for-Sale A.Trading$360,000Available-for-Sale$550,000B.Trading$360,000Available-for-Sale$450,000C.Trading$320,000Available-for-Sale$450,000D.Trading$304,000Available-for-Sale$420,000
C.Trading$320,000Available-for-Sale$450,000
The amount by which the fair value of a debt security exceeds its cost should be accounted for in the financial statements when the security is classified as TradingAvailable-for-Sale A.TradingNoAvailable-for-SaleNoB.TradingNoAvailable-for-SaleYesC.TradingYesAvailable-for-SaleYesD.TradingYesAvailable-for-SaleNo
C.TradingYesAvailable-for-SaleYes