Investments in debt securities are generally recorded at
a. cost including accrued interest.
b. maturity value.
c. cost including brokerage and other fees.
d. maturity value with a separate discount or premium account.
Answer: C
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Accounting Chapter 17
- 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.
- Match the approach and location where gains and losses from available-for-sale securities are reported: Location where gains/ Approach losses reported_ __
- On December 31, 2010, Patel Co. purchased equity securities as trading securities. Pertinent data are as follows:
- 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?
- 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.
- 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?
- At December 31, 2010, Jeter Corp. had the following equity securities that were purchased during 2010, its first year of operation:
- 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?
- 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
- 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
- Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. Tracy should report investment revenue for 2010 of
- Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. If the beginning balance in the investment account was $240,000, the balance at December 31, 2010 should be
- Myers Co. acquired a 60% interest in Gannon Corp. on December 31, 2010 for $945,000. During 2011, Gannon had net income of $600,000 and paid cash dividends of $150,000. At December 31, 2011, the balance in the investment account should be
- 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. How much investment income should Dexter report in 2010?
- 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?
- Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $300,000 on January 2, 2010. During 2010, Darby Company declared dividends of $50,000 and reported earnings for the year of $200,000.
- Harrison should report investment revenue for 2011 of
- If the beginning balance in the investment account was $500,000, the balance at December 31, 2011 should be
- 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
- 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 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
- 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
- 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?
- 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?
- At December 31, 2011, Atlanta Co. has a stock portfolio valued at $40,000. Its cost was $33,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $2,000, which of the following journal entries is required at December 31, 2011?