ACCT investments chapter

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

$18000/credit

A long-term investment classified as equity securities with a significant influence implies that the investor can exert significant influence over the investee. An investor that owns _______ or more (but no more than ______) of a company's voting stock is usually presumed to have a significant influence over the investee.

20%; 50%

significant influence

45% of stock (range 20%-50%)

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

CREDIT Unrealized Gain -- Income for $3,500 DEBIT Fair value adjustment--Trading for $3500

Phoenix Co. paid $25,000 to buy a 5%, 2-year bond payable with a $25,000 par value. The bonds pay interest semiannually. Phoenix intends to hold the bonds until they mature. The entry to reflect this purchase would include a debit to which of the following accounts in what amount?

Debit investments for $25,000

Johnson Co. holds trading securities. Johnson should report these investments on the balance sheet at

Fair Value

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

Gain on sale of stock investments $5000 Equity Method Investments for $30000

___________ securities are debt investments not classified as trading or held-to-maturity securities.

available for sale

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

available-for-sale

Light, Inc. accounts for several long-term investments with a controlling interest. Light, Inc. will report these investments using Blank 1Blank 1 consolidated , Correct Unavailable financial statements

consolidated

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

consolidated

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

credit / $9000

Alan Co. holds trading securities that the company intends to actively buy and sell for profit. These are reported on Alan's balance sheet under (current/trading)

current

Wendall Co. purchases 500 shares of Orison Inc. common stock at par value for $15,000. Wendall records the purchase of equity investments with insignificant influence with a (debit/credit) Blank 1Blank 1 debit , Correct Unavailable to Stock Investments.

debit

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

debit

Wendall Co. purchases 500 shares of Orison Inc. common stock at par value for $15,000. Wendall records the purchase of equity investments with insignificant influence with a (debit/credit)

debit to stock investments

Identify the accounting method for each type of security.

debt investments-held-to-maturity -- Equity debt investments-trading -- Fair value Equity method investments-significant influence -- cost

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

earnings from equity method investments; $9000

sold trading securities that net proceeds

gains and losses are recognized (proceeds-cost of security)

Grace, Inc. uses the consolidation method to report a large investment in Jorge, Inc. In this situation, Grace is called the , and the Jorge is called the subsidiary.

parent

Earnings from long-term investments in equity securities with significant influence is reported in the Equity Method Investments account. This account is a _____ account, and is reported on the __________.

permanent; balance sheet

group of trading securities at fair value

portfolio

total assets ratio is separated in to profit margin and total asset turnover for analysis.

return

Conway Co. purchases 1,000 shares of Ellis Co. common stock at par value for $35,000. Conway records the purchase of this equity investment with insignificant influence with a debit to _______ and a credit to Cash.

stock investments

An important ratio in assessing financial performance that takes net sales divided by average total assets is the:

total asset turnover ratio

Grady Co. purchased debt securities that it plans to actively buy and sell for profit. Grady will record these securities as

trading securities current assets

Identify which reporting method to use for each class of investments.

trading-fair value held to maturity - cost significant influence - equity method controlling influence - consolidation

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

equity method

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

equity method investments

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

equity method investments

Available-for-sale securities are reported at fair value. Unrealized losses are reported in the

equity section of the balance sheet

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

fair value

_________ securities are debt securities a company intends and is able to hold until maturity. They are reported in current assets or long-term assets, depending on their maturity date.

held-to-maturity

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

higher income w/excess cash and income for pension

Available-for-sale securities are reported at fair value. Unrealized gains are reported:

in the equity section of the balance sheet

Income from long-term investments in equity securities with significant influence is reported in the Earnings from Equity Method Investment account. This account is a temporary account, closed to the account.

income summary account

Ivers Co. holds $30,000 of available-for-sale securities. Ivers intends to hold these securities for three years. Ivers should report these securities as a(n) ________ on the balance sheet.

long term assets