Archive for February 2017

Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of Pear Co. The investment's carrying value is $3,200,000 at December 31, 2010. On January 9, 2011, Rushia learns that Pear Co. has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2012, Pear Co. has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.

If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using U.S. GAAP for its external financial reporting, which...

On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'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 $720,000 at December 31, 2010. Ace reported net income of $450,000 for the year ended December 31, 2010, and paid common stock dividends totaling $180,000 during 2010. How much did Reston pay for its 25% interest in Ace?

On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'s common stock; no goodwill resulted from the purchase. Reston appropriately carries this...

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for $400,000. During 2010, Doane earned $160,000 and paid dividends of $100,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2011, Doane earned $200,000 and paid dividends of $60,000 on April 1 and $60,000 on October 1. On July 1, 2011, Rich sold half of its stock in Doane for $264,000 cash.

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for $400,000. During 2010, Doane earned $160,000 and paid dividends of $100,000....

On December 29, 2011, James Co. sold an equity security that had been purchased on January 4, 2010. James owned no other equity securities. An unrealized holding loss was reported in the 2010 income statement. A realized gain was reported in the 2011 income statement. Was the equity security classified as available-for-sale and did its 2010 market price decline exceed its 2011 market price recovery?

On December 29, 2011, James Co. sold an equity security that had been purchased on January 4, 2010. James owned no other equity securities. An unrealized...

Valet Corp. began operations in 2010. An analysis of Valet's equity securities portfolio acquired in 2010 shows the following totals at December 31, 2010 for trading and available-for-sale securities: Trading Available-for-Sale Securities Securities Aggregate cost $90,000 $110,000 Aggregate fair value 65,000 95,000 What amount should Valet report in its 2010 income statement for unrealized holding loss?

Valet Corp. began operations in 2010. An analysis of Valet's equity securities portfolio acquired in 2010 shows the following totals at December 31,...

On October 1, 2010, Wenn Co. purchased 600 of the $1,000 face value, 8% bonds of Loy, Inc., for $702,000, including accrued interest of $12,000. The bonds, which mature on January 1, 2017, 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, 2011 balance sheet, the carrying value of the bonds is

On October 1, 2010, Wenn Co. purchased 600 of the $1,000 face value, 8% bonds of Loy, Inc., for $702,000, including accrued interest of $12,000. The...

The following information relates to Windom Company for 2010: Realized gain on sale of available-for-sale securities $15,000 Unrealized holding gains arising during the period on available-for-sale securities 35,000 Reclassification adjustment for gains included in net income 10,000 Windom's 2010 other comprehensive income is

The following information relates to Windom Company for 2010:Realized gain on sale of available-for-sale securities $15,000Unrealized holding gains...

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown.What amount should Dexter show in the investment account at December 31, 2010 if the beginning of the year balance in the account was $320,000?

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown.What...

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2008. Sherman Corporation had 100,000 shares of common stock outstanding during 2011, paid cash dividends of $60,000 during 2011, and reported net income of $200,000 for 2011. Ziegler Corporation should report revenue from investment for 2011 in the amount of

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2008. Sherman Corporation had...

On January 2, 2010 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2010 Jobs, Inc. reported net income of $420,000 and distributed dividends of $180,000. The ending balance in the Investment in Pod Company account at December 31, 2010 was $320,000 after applying the equity method during 2010. What was the purchase price Pod Company paid for its investment in Jobs, Inc?

On January 2, 2010 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the...

On its December 31, 2010 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2011 in the composition of Calhoun's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/11 X $125,000 $160,000 Y 100,000 95,000 Z 175,000 125,000 $400,000 $380,000

On its December 31, 2010 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale)...

During 2010, Woods Company purchased 20,000 shares of Holmes Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2010. Woods sold all of the Holmes stock for $17 per share on December 3, 2011, incurring $14,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2011 of

During 2010, Woods Company purchased 20,000 shares of Holmes Corp. common stock for $315,000 as an available-for-sale investment. The fair value of...

On its December 31, 2010, balance sheet, Trump Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2011, the fair value of the securities was $585,000. What should Trump report on its 2011 income statement as a result of the increase in fair value of the investments in 2011?

On its December 31, 2010, balance sheet, Trump Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value...

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2010 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $250,000 $200,000 $(50,000) Lyman, Inc. 245,000 265,000 20,000 $495,000 $465,000 $(30,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2010 income statement if 2010 is Kramer's first year of operation?

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows:December 31, 2010Fair UnrealizedCost Value...

During 2010 Logic Company purchased 4,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 1,000 shares of Midi, Inc. for $35 per share. At December 31, 2010 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2010 related to its investment in Midi, Inc. stock?

During 2010 Logic Company purchased 4,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year...

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively.

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold...

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At December 31, 2010, the fair value of the Carlin, Inc. bonds was $318,000. What should Richman Co. report as other comprehensive income and as a separate component of stockholders' equity?

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold...

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the straight-line method, what is the amount of premium amortization that would be recognized in 2012 related to these bonds?

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December...

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2011 related to these bonds?

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December...

During 2008, Hauke Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. Hauke sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is

During 2008, Hauke Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March...

On October 1, 2010, Menke Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2014. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2010 income statement from this investment should be

On October 1, 2010, Menke Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest....

On November 1, 2010, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2017. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2010 income statement as a result of Horton's available-for-sale investment in Lopez wa

On November 1, 2010, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid...

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2015, 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, 2010, balance sheet at

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest...

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2019, 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, 2010 balance sheet at a carrying value of

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds,...

On August 1, 2010, Fowler Company acquired $200,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2015, 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, 2010?

On August 1, 2010, Fowler Company acquired $200,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May...

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At April 1, 2012, Landis Co. sold the Ritter bonds for $515,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2012 was $516,875. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds?

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold...

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At December 31, 2011, the fair value of the Ritter, Inc. bonds was $530,000. What should Landis Co. report as other comprehensive income and as a separate component of stockholders' equity?

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold...

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity.

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable...

On August 1, 2010, Dambro Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2016, with interest paid each October 31 and April 30. The bonds will be added to D'ambros available-for-sale portfolio. The preferred entry to record the purchase of the bonds on

On August 1, 2010, Dambro Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30,...

A variable-interest entity has

A variable-interest entity has a. insufficient equity investment at risk. b. stockholders who have decision-making rights. c. stockholders who absorb...

Gains or losses on cash flow hedges are

Gains or losses on cash flow hedges are a. ignored completely. b. recorded in equity, as part of other comprehensive income. c. reported directly...

Transfers between categories

Transfers between categories a. result in companies omitting recognition of fair value in the year of the transfer. b. are accounted for at fair...

"Gains trading" or "cherry picking" involves

"Gains trading" or "cherry picking" involves a. moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity...

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?

A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification...

A reclassification adjustment is reported in the

A reclassification adjustment is reported in the a. income statement as an Other Revenue or Expense. b. stockholders' equity section of the balance...

Impairments are

Impairments are a. based on discounted cash flows for securities. b. recognized as a realized loss if the impairment is judged to be temporary. c....

The fair value option allows a company to

The fair value option allows a company to a. value its own liabilities at fair value. b. record income when the fair value of its bonds increases. c....

Dublin Co. holds a 30% stake in Club Co. which was purchased in 2011 at a cost of $3,000,000. After applying the equity method, the Investment in Club Co. account has a balance of $3,040,000. At December 31, 2011 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, 2011?

Dublin Co. holds a 30% stake in Club Co. which was purchased in 2011 at a cost of $3,000,000. After applying the equity method, the Investment in Club...

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2010, 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?

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2010, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly...

Held-to-maturity securities are reported at

Held-to-maturity securities are reported at a. acquisition cost. b. acquisition cost plus amortization of a discount. c. acquisition cost plus amortization...

A correct valuation is

A correct valuation is a. available-for-sale at amortized cost. b. held-to-maturity at amortized cost. c. held-to-maturity at fair value. d. none...

Which of the following is not a debt security?

Which of the following is not a debt security? a. Convertible bonds b. Commercial paper c. Loans receivable d. All of these are debt securities. Answer:...

Which of the following statements is correct?

Which of the following statements is correct? a. In a direct-financing lease, initial direct costs are added to the net investment in the lease. b....

For a sales-type lease,

For a sales-type lease, a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed...

The initial direct costs of leasing

The initial direct costs of leasing a. are generally borne by the lessee. b. include incremental costs related to internal activities of leasing,...

Executory costs include

Executory costs include a. maintenance. b. property taxes. c. insurance. d. all of these. Answer: ...

Minimum lease payments may include a

Minimum lease payments may include a a. penalty for failure to renew. b. bargain purchase option. c. guaranteed residual value. d. any of these. Answer:...
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