Question 1

Osaka Co. acquired a 10% interest in Chen Corp. on December 31, 2013 for HK$3,780,000. During 2014, Chen had net income of HK$2,400,000 and paid cash dividends of HK$600,000. Osaka's 2014 income statement will report

Accepted Answer

Osaka Co. owns a 10% interest in Chen Corp., so it will report 10% of the dividends received as dividend income. 10% of HK$600,000 is HK$60,000.

Question 2

Stine Co. purchased 80, 6% Kolaw Company bonds for $80,000 cash. Interest is payable semiannually on July 1 and January 1. If 40 of the securities are sold on March 1 for $42,000 plus accured interest the entry would include a credit to Gain on Sale of Debt Investments for

Accepted Answer

The answer of Stine Co. purchased 80, 6% Kolaw Company...

Question 3

Desmond Corporation owns 3,500 of the 10,000 outstanding ordinary shares of Wetmore Corporation. During 2014, Wetmore earned £2,400,000 and paid cash dividends of £800,000. What balance should Desmond report on its December 31, 2014 statement of financial position for the investment account if the beginning of the year balance in the account was £3,200,000?

Accepted Answer

Desmond Corporation owns 3,500/10,000 = 35% of Wetmore Corporation.
Therefore, it would record 35% of Wetmore's net income and dividends as follows:
Net income = £2,400,000 x 35% = £840,000
Dividends received = £800,000 x 35% = £280,000
The balance on the investment account at the end of the year would be:
Beginning balance = £3,200,000
Add: Share of net income = £840,000
Less: Dividends received = (£280,000)
Ending balance = £3,760,000

Question 4

Huang Company owns 15,000 of the 50,000 outstanding ordinary shares of Xi Inc. The balance in the investment account at January 1, 2014 was ¥500,000,000. During 2014, Xi earned ¥800,000,000 and paid cash dividends of ¥640,000,000. Huang should report investment revenue for 2014 of

Accepted Answer

Huang Company owns 15,000 of the 50,000 outstanding ordinary shares of Xi Inc., which represents a 30% ownership interest. Xi earned ¥800,000,000 and paid cash dividends of ¥640,000,000 during 2014. Huang should report investment revenue for 2014 of ¥240,000,000, which is calculated as follows:Investment revenue = (Net income of Xi Inc. x Ownership interest) + Dividends received= (¥800,000,000 x 30%) + ¥640,000,000= ¥240,000,000

Question 5

On January 1, Winston Company purchased as an investment a $1,000, 5% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Accepted Answer

The answer of On January 1, Winston Company purchased as...

Question 6

Nance Company owns 40% interest in the shares of Finley Corporation. During the year, Finley pays $25,000 in dividends, and reports $100,000 in net income. Nance Company's investment in Finley will increase by

Accepted Answer

The answer of Nance Company owns 40% interest in the...

Question 7

On January 1, Burkett Company purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. What is the entry to record the interest accrual on December 31?

Accepted Answer

The answer of On January 1, Burkett Company purchased as...

Question 8

Nagen Company had these transactions pertaining to share investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for ₤34,000 cash.
June 1 Received cash dividends of ₤2 per share on Horton shares.
Oct) 1 Sold 800 Horton shares for ₤15,600.
The entry to record the receipt of the dividends on June 1 would include a

Accepted Answer

The receipt of dividends is recorded as a credit to Dividend Revenue, recognizing the income earned from the investment.

Question 9

On January 1, 2014, Bregeut Company, a calendar year corporation, purchased 900 of the $1,000 face value, 9% bonds of Clariant Incorporated, for CHF900,000. The bonds, which mature on January 1, 2019, pay interest semiannually on July 1 and January 1. The December 31, 2014 adjusting entry for the bonds on Bregeut's books will include

Accepted Answer

The bonds pay 9% interest annually, which is CHF81,000 (900 bonds x CHF1,000 x 9%). Since interest is paid semiannually, each payment is CHF40,500. The adjusting entry on December 31, 2014, would recognize the interest earned but not yet received, which is a credit to Interest Revenue for CHF40,500.

Question 10

Nagen Company had these transactions pertaining to share investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for ₤34,000 cash.
June 1 Received cash dividends of ₤2 per share on Horton shares.
Oct) 1 Sold 800 Horton shares for ₤.15,600.
The entry to record the sale of the shares would include a

Accepted Answer

The answer of Nagen Company had these transactions pertaining to...

Question 11

At December 31, 2013, EI Greco Company has an investment in 2,000 of the €1,000 8% bonds of Dublin Company with a carrying value of €2,000,000. The bonds, which mature on January 1, 2018, pay interest semiannually on July 1 and January 1. After collecting the interest on January 1, 2014, EI Greco sells the bonds for €2,220,000. EI Greco will recognize

Accepted Answer

The gain on sale of debt investments is calculated as follows: 
Proceeds from sale: €2,220,000 
Carrying value: €2,000,000 
Gain on sale: €220,000 
Therefore, option B is the correct answer. Option A is incorrect because there is no unrealized loss since the investment was sold. Option C is incorrect because interest revenue of €160,000 was already recognized before the bonds were sold. Option D is incorrect because there was a gain on the sale of the debt investment, not a loss.

Question 12

Nagen Company had these transactions pertaining to share investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for ₤34,000 cash.
June 1 Received cash dividends of ₤2 per share on Horton shares.
Oct) 1 Sold 800 Horton shares for ₤15,600.
The entry to record the purchase of the Horton shares would include a

Accepted Answer

When purchasing shares of another company, the initial entry is recorded as a debit to Share Investments to represent the asset acquired, and a credit to Cash for the amount paid. Therefore, the correct entry for the purchase of Horton Company shares would be a debit to Share Investments for ₤34,000 and a credit to Cash for ₤34,000. Choice (C) is the only option that correctly includes a debit to Share Investments for the amount of the purchase.

Question 13

On January 1, 2014, Garner Corporation purchased 30% of the ordinary shares outstanding of Landon Corporation for $200,000. During 2014, Landon Corporation reported net income of $80,000 and paid cash dividends of $40,000. The balance of the Share Investments-Landon account on the books of Garner Corporation at December 31, 2014 is

Accepted Answer

To calculate the ending balance of the Share Investments-Landon account, we need to take into account the following:

1. Garner Corporation purchased 30% of the ordinary shares outstanding of Landon Corporation for $200,000 on January 1, 2014.
2. Landon Corporation reported net income of $80,000 during 2014.
3. Landon Corporation paid cash dividends of $40,000 during 2014.

First, we need to calculate the share of net income earned by Garner Corporation during 2014, which is equal to:
$80,000 x 30% = $24,000

Second, we need to subtract the share of dividends received by Garner Corporation during 2014, which is equal to:
$40,000 x 30% = $12,000

Therefore, the net increase in the Share Investments-Landon account during 2014 is equal to:
$200,000 + $24,000 - $12,000 = $212,000

Thus, the correct answer is D) $212,000.

Question 14

Mouns Company owns 40% interest in the shares of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income. Mouns Company's investment in Darian will increase Mouns' net income by

Accepted Answer

Mouns Company owns 40% of Darian Corporation, so it recognizes 40% of Darian's net income. 40% of $100,000 is $40,000, which is the amount by which Mouns' net income increases. The dividends received do not affect the net income under the equity method.

Question 15

Elston Corporation sells 100 ordinary shares being held as an investment. The shares were acquired six months ago at a cost of $30 a share. Elston sold the shares for $40 a share. The entry to record the sale is

Accepted Answer

The answer of Elston Corporation sells 100 ordinary shares being...

Question 16

Greene Corporation sells 200 ordinary shares being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Greene sold the shares for $40 a share. The entry to record the sale is

Accepted Answer

The answer of Greene Corporation sells 200 ordinary shares being...

Question 17

Huang Company owns 15,000 of the 50,000 outstanding ordinary shares of Xi Inc. The balance in the investment account at January 1, 2014 was ¥500,000,000. During 2014, Xi earned ¥800,000,000 and paid cash dividends of ¥640,000,000. The balance in the Investment in Xi account reported on Huang's December 31, 2014 statement of financial position should be

Accepted Answer

The balance in the Investment in Xi account at January 1, 2014 was ¥500,000,000. Huang Company's share of Xi Inc. earnings for 2014 is calculated as 15,000/50,000 x ¥800,000,000 = ¥240,000,000. The new balance in the Investment in Xi account will be the previous balance plus the share of earnings received minus dividends received, or ¥500,000,000 + ¥240,000,000 - ¥640,000,000 = ¥100,000,000. However, this is Huang's share of Xi's net assets, so it needs to be multiplied by the percentage of shares owned, or 15,000/50,000 = 30%. So, the balance in the Investment in Xi account reported on Huang's statement of financial position should be 30% x ¥100,000,000 = ¥30,000,000. Therefore, the correct answer is C (¥548,000,000, which is ¥500,000,000 + ¥240,000,000 - ¥640,000,000 + ¥30,000,000).

Question 18

On January 1, 2014, Bregeut Company, a calendar year corporation, purchased 900 of the $1,000 face value, 9% bonds of Clariant Incorporated, for CHF900,000. The bonds, which mature on January 1, 2019, pay interest semiannually on July 1 and January 1. The entry on Bregeut's books to record the acquisition will include

Accepted Answer

When a company purchases debt investments such as bonds, the appropriate account to debit is Debt Investments. The purchase price of CHF900,000 would be recorded as the debit amount. The other answer choices are not appropriate for this transaction as Bonds Payable is used to record a company's own debt issuance, Interest Receivable is used to record interest owed to the company, and Interest Revenue is used to record interest earned by the company from its investments.

Question 19

Desmond Corporation owns 3,500 of the 10,000 outstanding ordinary shares of Wetmore Corporation. During 2014, Wetmore earned £2,400,000 and paid cash dividends of £800,000. How much investment revenue should Desmond report in 2014?

Accepted Answer

Desmond Corporation owns 35% of Wetmore Corporation (3,500 out of 10,000 shares). Therefore, Desmond should report 35% of Wetmore's earnings as investment revenue. 35% of £2,400,000 is £840,000.

Question 20

On January 1, 2014, Bregeut Company, a calendar year corporation, purchased 900 of the $1,000 face value, 9% bonds of Clariant Incorporated, for CHF900,000. The bonds, which mature on January 1, 2019, pay interest semiannually on July 1 and January 1. On July, 2014, Bregeut will make an entry to

Accepted Answer

Bregeut will recognize interest revenue from the semiannual interest payment received on the bonds.

Quiz 12: Investments