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Exam 15: Investments and Fair Value Accounting

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Question 31

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An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale?

A) $12,750 gain
B) $600 gain
C) $600 loss
D) $9,250 loss

E) C) and D)
F) None of the above

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Question 32

Multiple Choice

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An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were sold for $35 per share. What is the amount of gain or loss on the sale?

A) $3,500 gain
B) $350 gain
C) $350 loss
D) $500 gain

E) A) and B)
F) A) and C)

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Question 33

Multiple Choice

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The cost method of accounting for stock

Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives?

GAAP requires trading and available-for-sale investments to be reported at their

Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton using the cost method?

On January 1, the valuation allowance for trading investments account has a zero balance. On December 31, the cost of trading securities portfolio was $64,200, and the fair value was $67,000.​Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments.

Match each of the definitions that follow with the appropriate investment term (a-j) . -A corporation owning all or the majority of the voting stock of another corporation

The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.

When the cost method is used to account for an investment, the carrying value of the investment is affected by

On September 1, Parsons Company purchased $84,000, 10-year, 7% government bonds at 100 plus accrued interest. The semiannual interest payment dates are June 30 and December 31. Interest calculations are done by the month. (a)Journalize the entry to record the bond purchase. (b)Journalize the receipt of interest on December 31 of the first year. (c)Journalize the sale of the bonds on February 1 of the second year for $82,000 plus accrued interest.

If one company owns more than 50% of the common stock of another company,

A company uses cash to pay all of the following except

Available-for-sale securities are securities that management expects to sell in the future, but are not actively traded for profit.

Nicer Corporation reported net income of $50,000 in the current year. There are 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 par common stock outstanding. During the year, Nicer paid the preferred stockholders a $6-per-share dividend and also paid $30,000 to common shareholders. The market value of Nicer's stock is preferred stock, $95, and common stock, $5.​ (a) Calculate Nicer's dividend yield common stock. (b) Why does the dividend yield vary widely across firms?

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a dividend per share of $0.42. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include a

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is