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Exam 16: Investments

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Question 51

True/False

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Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

A) True
B) False

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Question 52

Multiple Choice

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Debt investments are recorded at the

A) face value of the bonds purchased.
B) face value of the bonds purchased plus interest.
C) price paid for the bonds plus interest.
D) price paid for the bonds plus brokerage fees.

E) None of the above
F) All of the above

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Question 53

Multiple Choice

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Short-term investments are listed on the balance sheet immediately below

The cost method of accounting for long-term investments in stock should be employed when the

Stone Company had the following transactions pertaining to short-term investments in equity securities. Jan. 1 Purchased 1,500 shares of Quayle Company stock for $9,150 cash plus brokerage fees of $300. June 1 Received cash dividends of $.50 per share on Quayle Company stock. Sept. 15 Sold 400 shares of Quayle Company stock for $2,500 less brokerage fees of $100. Dec. 1 Received cash dividends of $.50 per share on Quayle Company stock. Instructions (a) Journalize the transactions. (b) Indicate the income statement effects of the transactions.

A company may purchase a noncontrolling interest in another firm in a related industry

Short-term investments are securities held by a company that are

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

On January 1, Kingman Corporation purchased a 30% equity in Lewis Company for $360,000. At December 31, Lewis declared and paid a $40,000 cash dividend and reported net income of $98,000. Prepare the necessary journal entries for Kingman Corporation.

When a company holds stock of several different corporations, the group of securities is identified as a(n)

On January 2, Groneman Corporation acquired 30% of the outstanding common stock of Coulson Company for $550,000. For the year ended December 31, Coulson reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. At December 31, the carrying value of Groneman's investment in Coulson under the equity method is

The company whose stock is owned by the parent company is called the

Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

Jacobs Corporation makes a short-term investment in 150 shares of Starr Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $450. The entry for the purchase is

The account, Stock Investments, is

On January 1, 2010, Bartley Corp. paid $800,000 for 100,000 shares of Oak Company's common stock, which represents 40% of Oak's outstanding common stock. Oak reported net income of $200,000 and paid cash dividends of $60,000 during 2010. Bartley should report the investment in Oak Company on its December 31, 2010, balance sheet at:

Nagen Company had these transactions pertaining to stock investments: Feb) 1 Purchased 3,000 shares of Horton Company (10%) for $49,800 cash plus brokerage fees of $1,200. June 1 Received cash dividends of $2 per share on Horton stock. Oct) 1 Sold 1,200 shares of Horton stock for $24,000 less brokerage fees of $600. The entry to record the purchase of the Horton stock would include a

All of the following statements about short-term investments are true except:

Presented below are two independent situations. 1. Grand Cosmetics acquired 10% of the 200,000 shares of common stock of Cey Fashion at a total cost of $13 per share on March 18, 2010. On June 30, Cey declared and paid a $60,000 dividend. On December 31, Cey reported net income of $110,000 for the year. At December 31, the market price of Cey Fashion was $15 per share. The stock is classified as available-for-sale. 2. Unruh, Inc., obtained significant influence over Olsen Corporation by buying 25% of Olsen 40,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2010. On June 15, Olsen declared and paid a cash dividend of $30,000. On December 31, Olsen reported a net income of $80,000 for the year. Instructions Prepare all the necessary journal entries for 2010 for (a)Grand Cosmetics and (b) Unruh, Inc.