Question 1

The Allowance to Adjust Trading Securities to Market account is

Accepted Answer

The Allowance to Adjust Trading Securities to Market account is a contra asset account. It is used to adjust the value of trading securities to their current market value, offsetting the asset account in which the securities are recorded.

Question 2

A transaction that brings together two or more previously separate entities to form a single legal entity is called

Accepted Answer

The answer of A transaction that brings together two or...

Question 3

On January 1, 2012, Parent, Inc., purchased 80% of the outstanding common stock of Sub Corporation for $750,000. Since Parent has control over Sub, a consolidated balance sheet must be prepared from the individual balance sheets of both companies. Complete the following worksheet to prepare the consolidated balance sheet on January 1, 2012.

Accepted Answer

The answer of On January 1, 2012, Parent, Inc., purchased...

Question 4

Select the incorrect statement from the following:

Accepted Answer

Consolidated net income is not equal to the sum of the parent's net income and the sub's net income. It is calculated by eliminating any intercompany transactions and adjustments, and then adding the parent's net income and the sub's net income minus any income attributable to minority interest.

Question 5

Trattoria, Inc. engaged in the following investment transactions during 2013:
1.Purchased 200 shares of Tarbet Corporation stock for $11,500.
2.Received a $1.50 per share dividend on the Tarbet stock.
3.Sold 50 shares of the Tarbet stock for $55 per share.
At December 31, 2013, the market value of Tarbet's stock was $54.
A)Prepare journal entries to record this investment assuming management intends to hold this investment for less than a month.
B)Calculate the market value of the company's investment at December 31, 2013.
C)Prepare the necessary journal entry at December 31, 2013.
D)How should this investment be disclosed in the December 31, 2013 financial statements?

Accepted Answer

The answer of Trattoria, Inc. engaged in the following investment...

Question 6

You are the accounting manager for a mid-sized electronics retailer. Your accounting intern is having trouble understanding how your company accounts for its investments in the stock of other companies. You just spent the better part of the morning reviewing in detail all of the recording and reporting requirements but the intern is still fuzzy.
Complete the following table to compare and contrast for your intern the requirements for the different types of stock investments that your company might make. Be sure to use the legend provided.
Investments in Equity Securities  Legend:
Accounting Method: Equity method, Equity method + Consolidation, or Fair value method
Impact of Dividend Receipts: Decrease investment, Eliminated, or Increase income
Reporting of unrealized gains/losses: Balance sheet, Income statement, or Not recognized

Accepted Answer

The answer of  
You are the accounting manager for...

Question 7

On January 1, 2012, Teddy Bear Company purchased 25% of the common stock of one of its major suppliers-Fluff n' Stuff, for $1,000,000 cash. On November 1, 2012, Fluff n' Stuff declared and paid a cash dividend of $50,000. Further, for the year ended December 31, 2012, Fluff n' Stuff reported net income of $200,000.
A) Which method of accounting for investments should be used for the Fluff n' Stuff stock?
B) Record all of the necessary journal entries for this investment during 2012.
C) What will be the balance in the investment account at December 31, 2012?

Accepted Answer

The answer of On January 1, 2012, Teddy Bear Company...

Question 8

Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a

Accepted Answer

A business combination is defined as any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity. The other options are not correct. A business plan is a written document that outlines a company's goals and strategies for achieving them. A corporation is a type of business entity that is legally separate from its owners. A joint venture is a business partnership in which two or more parties agree to combine their resources for a specific project or period of time.

Question 9

The journal entry required to record the receipt of dividends under the fair value method of accounting for investments includes a

Accepted Answer

Under the fair value method of accounting for investments, dividends received are recognized as dividend income. Therefore, the journal entry would include a credit to the dividend income account. There would be no debit or credit to the investment account or retained earnings.

Question 10

A company is referred to as a parent if it owns

Accepted Answer

A company is considered a parent if it owns more than 50% of another company's stock. This means that it has controlling interest and can make decisions for the subsidiary company.

Question 11

On January 1, 2011, P Company purchased all of the outstanding common stock of S Company. The consolidation of the two balance sheets requires a

Accepted Answer

When consolidating, the parent company's (P Company) "Investment in S Company" account is eliminated through a credit adjustment to offset the investment asset on the parent's books, reflecting that the investment is now a part of the consolidated entity.

Question 12

Which method of accounting for investments results in unrealized gains and losses because the investments must be marked to market?

Accepted Answer

The fair value method requires that investments be marked to market, resulting in unrealized gains and losses. This is different from the amortized cost method, where investments are tracked at their original cost (adjusted for any amortization or impairment), and the equity method, where investments are accounted for based on the investor's share of the investee's income. The trading method is also marked to market, but it only applies to investments purchased with the intent of selling in the near term, which may not be applicable to all types of investments.

Question 13

Select the correct statement from the following:

Accepted Answer

Consolidation worksheet adjustments are made only for the purpose of preparing consolidated financial statements and are not entered on the accounting records of either parent or sub. They are temporary adjustments made at the time of consolidation and are not permanent entries in the books of either company.

Question 14

On January 1, 2012, Parent, Inc., purchases all the outstanding common stock of Sub Corporation for $750,000. Since Parent has control over Sub, a consolidated balance sheet must be prepared from the individual balance sheets of both companies. Complete the following worksheet to prepare the consolidated balance sheet on January 1, 2012.

Accepted Answer

The answer of On January 1, 2012, Parent, Inc., purchases...

Question 15

Tusk Company acquired all of the assets of Tinsel Company for $1,000,000. With the approval of Tinsel's stockholders and creditors, Tinsel transferred all of its assets and liabilities to Tusk Company and distributed the cash to Tinsel's stockholders. On the acquisition date, Tinsel's stockholders' equity was $500,000. Tusk Company determined that Tinsel's liabilities of $500,000 are correctly valued, but its identifiable assets are worth $300,000 more than their book value of $1,000,000.
Determine the amount of goodwill to be recognized by Tusk Company as a result of its acquisition of Tinsel Company.

Accepted Answer

The answer of Tusk Company acquired all of the assets...

Question 16

P Company paid $500,000 for 100% of the net assets (assets less liabilities) of S Company. The current value of S Company's net assets was only $475,000. As a result of this acquisition, P Company must recognize

Accepted Answer

Since P Company paid more than the current value of S Company's net assets, there is goodwill involved in the acquisition. The amount of goodwill recognized would be $25,000 ($500,000 - $475,000).

Question 17

Which method of accounting for investments recognizes income when income is earned by the investee?

Accepted Answer

The equity method recognizes income when income is earned by the investee. Under this method, the investor records its proportionate share of the investee's net income as an increase in the investment account on the balance sheet. Therefore, the equity method is the best choice for recognizing income from investments.

Question 18

You are the owner of a company that produces an energy drink that has unique properties. Its primary ingredient, a berry found only in the South American rain forest, causes a significant prolonged increase in the drinker's metabolism rate. You have found only a single supplier of this berry, Tropical Supplies, Inc., a publicly traded company.
What are some things you can do to assure your company of access to this important raw material?

Accepted Answer

The answer of  
You are the owner of a...

Question 19

Tidewater Management, Inc. had no investments in short-term marketable securities prior to 2013. During 2013, the company engaged in the following investment transactions:
1.Purchased 300 shares of Toucan Taxi Company stock for $14 per share.
2.Received a $2.50 per share dividend on the Toucan Taxi stock.
3.Sold 200 shares of the Toucan Taxi stock for $16 per share.
At the end of 2013, the Toucan Taxi stock had a market value of $15 per share.
A)Prepare journal entries for each of the three transactions assuming they are available-for-sale securities.
B)Prepare journal entries, if required, to recognize the year-end market value. What is the income statement effect of the entry, if any?
C)How will this investment be reported on the company's balance sheet at December 31, 2013?

Accepted Answer

The answer of Tidewater Management, Inc. had no investments in...

Question 20

Select the incorrect statement from the following:

Accepted Answer

In both a 100% asset acquisition and a 100% stock acquisition where the entities are consolidated, the financial statements will reflect the assets and operations of the acquired company in a similar manner. The primary difference lies in the acquisition process and the legal form rather than the accounting treatment post-acquisition.

Quiz 13: Finance and Stock Market Equilibrium

The Allowance to Adjust Trading Securities to Market account is

A transaction that brings together two or more previously separate entities to form a single legal entity is called

Select the incorrect statement from the following:

Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a

The journal entry required to record the receipt of dividends under the fair value method of accounting for investments includes a

A company is referred to as a parent if it owns

On January 1, 2011, P Company purchased all of the outstanding common stock of S Company. The consolidation of the two balance sheets requires a

Which method of accounting for investments results in unrealized gains and losses because the investments must be marked to market?

Select the correct statement from the following:

P Company paid $500,000 for 100% of the net assets (assets less liabilities) of S Company. The current value of S Company's net assets was only $475,000. As a result of this acquisition, P Company must recognize

Which method of accounting for investments recognizes income when income is earned by the investee?

Select the incorrect statement from the following: