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Exam 29: Investments

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Question 51

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On May 1, Pierce Company purchased $60,000 of Stanton Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest.​ -The journal entry Pierce will record on February 1 will include a

A) credit to Interest Revenue for $1,500
B) credit to Gain on Sale of Investments for $1,500
C) credit to Cash for $52,500
D) credit to Interest Receivable for $600

E) B) and D)
F) B) and C)

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Question 52

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On September 1, Parsons Company purchased $84,000, 10-year, 7% government bonds at 100 plus accrued interest. The semi-annual 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.

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Question 53

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On October 1, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8 1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, the date of the last semiannual interest payments. Journalize the purchase.

Trading securities should be reported on the financial statements at fair value.

Temporary investments are recorded at their cost, which would include brokers' commissions.

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

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

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

Match each of the definitions that follow with the appropriate investment term (a-i). a.equity method b.parent company c.subsidiary company d.consolidated financial statements e.fair value f.unrealized gain or loss on investments.g.valuation allowance for investments h.amortized cost i.fair value method -a balance sheet account where the fair value adjustment for investments is reported

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Any gains or losses on the sale of bonds normally would be reported in the Other revenue (loss) section of the income statement.

Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.

Match each of the definitions that follow with the appropriate investment term (a-j). -the company investing in another company's stock A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

In general, consolidated financial statements should be prepared

Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.

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

Any difference between the fair values of the securities and their cost is a realized gain or loss.

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

Match each of the definitions that follow with the appropriate investment term (a-j). -securities not held for trading or to maturity or other strategic reasons A)debt securities B)equity securities C)investor D)investee E)fair value method F)trading securities G)available-for-sale securities H)held-to-maturity securities I)equity method J)business combination

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?