Question 1

On January 1, Bay View Company purchased as an investment a $1,000, 5% bond for $1,000.The bond pays interest on January 1.The bond is sold on July 1 for $1,070 plus accrued interest.Interest has not been accrued since the last interest payment date.What is the entry to record the cash proceeds at the time the bond is sold?

Accepted Answer

The answer of On January 1, Bay View Company purchased...

Question 2

On January 1, Belvedere Company purchased as an investment a $1,000, 7% bond for $1,000.The bond pays interest on January 1.What is the entry to record the interest accrual on December 31?

Accepted Answer

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

Question 3

McComb Inc.earns $1,350,000 and pays cash dividends for $450,000 during 2022.SFX Corporation owns 70,000 of the 210,000 outstanding shares of McComb.What amount should SFX show in the investment account at December 31, 2022 if the beginning of the year balance in the account was $150,000?

Accepted Answer

The investment account should be increased by the share of McComb's earnings, which is $1,350,000 x 70,000 / 210,000 = $450,000. The beginning balance of $150,000 plus the $450,000 share of earnings equals $600,000. However, SFX received $450,000 in cash dividends, which reduces the investment account balance to $600,000 - $450,000 = $150,000.

Question 4

On January 1, Waverly Company purchased as an investment a $1,000, 7% bond for $1,000.The bond pays interest on January 1.What is the entry to record the interest accrual on December 31?

Accepted Answer

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

Question 5

Which of the following is not a true statement about the accounting for long-term debt investments?

Accepted Answer

Accrued interest is not included in the cost of the investment; it is recorded separately as interest income.

Question 6

If a debt investment is sold, the investment account is

Accepted Answer

The answer of If a debt investment is sold, the...

Question 7

Vangaurd Co.purchased 80, 5% McLaughlin Company bonds for $80,000 cash.Interest is payable annually on January 1.The entry to record the purchase would include a debit to

Accepted Answer

The purchase of bonds is recorded by debiting the Debt Investments account for the amount paid, which is $80,000 in this case.

Question 8

On January 1, 2022, Chic Corp.paid $750,000 for 100,000 shares of Toto Company's common stock, which represents 25% of Toto's outstanding common stock.Toto reported income of $300,000 and paid cash dividends of $80,000 during 2022 Chic should report the investment in Toto Company on its December 31, 2022, balance sheet at

Accepted Answer

Chic Corp. should use the equity method since it owns 25% of Toto. The investment is initially recorded at cost ($750,000) and adjusted for its share of Toto's income (25% of $300,000 = $75,000) and dividends received (25% of $80,000 = $20,000). The investment value is $750,000 + $75,000 - $20,000 = $805,000.

Question 9

On January 1, 2022, Orleans industries acquired a 15% interest in Florida Corporation through the purchase of 12,000 shares of Florida Corporation common stock for $640,000.During 2022, Florida Corp.paid $160,000 in dividends and reported a net loss of $200,000.Orleans is able to exert significant influence on Florida.However, Orleans mistakenly records these transactions using the cost method rather than the equity method of accounting.Which of the following would show the correct presentation for Orlean's investment using the equity method?

Accepted Answer

The answer of On January 1, 2022, Orleans industries acquired...

Question 10

McComb Inc.earns $1,350,000 and pays cash dividends for $450,000 during 2022.SFX Corporation owns 70,000 of the 210,000 outstanding shares of McComb.How much revenue from investment should SFX report in 2022?

Accepted Answer

The answer of McComb Inc.earns $1,350,000 and pays cash dividends...

Question 11

Cedar Co.purchased 80, 6% LKN Company bonds for $80,000 cash.Interest is payable annually on January 1.If 40 of the securities are sold January 1 for $41,000 the entry would include a credit to Gain on Sale of Debt Investments of

Accepted Answer

The answer of Cedar Co.purchased 80, 6% LKN Company bonds...

Question 12

Charleston Co.purchased 60, 6% APS Company bonds on January 1, 2022 for $60,000 cash.Interest is payable annually on January 1.The entry to record the January 1, 2023 annual interest payment would include a

Accepted Answer

The answer of Charleston Co.purchased 60, 6% APS Company bonds...

Question 13

Porter Brothers Company purchased a debt investment for $80,000 on January 1, 2022.On January 1, 2023, Porter received cash interest of $4,000.Which of the following correctly presents the journal entries for the purchase and the receipt of interest?

Accepted Answer

The answer of Porter Brothers Company purchased a debt investment...

Question 14

On January 1, Vega Company purchased as an investment a $1,000, 6% bond for $1,000.The bond pays interest on January 1.The bond is sold on July 1 for $1,100 plus accrued interest.Interest has not been accrued since the last interest payment date.What is the entry to record the cash proceeds at the time the bond is sold?

Accepted Answer

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

Question 15

On January 1, Connid Company purchased as an investment a $1,000, 8% bond for $1,000.The bond pays interest on January 1.What is the entry to record the interest accrual on December 31?

Accepted Answer

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

Question 16

Charleston Co.purchased 60, 6% APS Company bonds on January 1, 2022 for $60,000 cash.Interest is payable annually on January 1.The entry to record the December 31 interest accrual would include a

Accepted Answer

The interest accrual for the year is calculated as 6% of $60,000, which equals $3,600. Since the interest is payable on January 1, the entry on December 31 would include a debit to Interest Receivable for $3,600 to recognize the interest earned but not yet received.

Question 17

On January 1, U.K.Enterprise purchased as an investment a $1,000, 7% bond for $1,000.The bond pays interest on January 1.The bond is sold on July 1 for $1,120 plus accrued interest.Interest has not been accrued since the last interest payment date.What is the entry to record the cash proceeds at the time the bond is sold?

Accepted Answer

The answer of On January 1, U.K.Enterprise purchased as an...

Question 18

All of the following factors would be signs of an investor's significant influence over an investee except

Accepted Answer

Immateria﻿l transactions between the investor and the investee would not indicate significant influence over the investee. Significant influence is typically demonstrated through representation on the board of directors, participation in policy-making, or other active involvement in the investee's management and decision-making. The dispersed ownership of common stock held by other stockholders may make it more difficult for an investor to exert significant influence, but it is not necessarily a determining factor.

Question 19

Buford Industries owns 40% of Appalachian Company.For the current year, Appalachian reports net income of $250,000 and declares and pays a $70,000 cash dividend.Which of the following correctly presents the journal entries to record Buford's equity in Appalachian net income and the receipt of dividends from Appalachian?

Accepted Answer

The answer of Buford Industries owns 40% of Appalachian Company.For...

Question 20

On August 1, Basil Company buys 2,000 shares of Zingo common stock for $61,500 cash.On December 1, the stock investments are sold for $71,000 in cash.Which of the following are the correct journal entries of record for the purchase and sale of the common stock?

Accepted Answer

The answer of On August 1, Basil Company buys 2,000...

Quiz 14: Understanding Investments in Debt and Equity Securities