Question 1

Cedar Co. purchased 120, 6% LKN Company bonds for $120,000 cash. Interest is payable semiannually on July 1 and January 1. If 60 of the securities are sold July 1 for $61,500 the entry would include a credit to Gain on Sale of Debt Investments of

Accepted Answer

The answer of Cedar Co. purchased 120, 6% LKN Company...

Question 2

On January 1, 2014, Tri-State Company purchased at face value, a $1,000 7%, bond that pays interest annually on January 1. Tri-State Company has a calendar year end. The entry for the receipt of interest on January 1, 2015 is

Accepted Answer

The answer of On January 1, 2014, Tri-State Company purchased...

Question 3

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 $76,000 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...

Question 4

Porter Brothers Company purchased debt investment for $80,000 on January 1, 2014. On July 1, 2014, Jamison received cash interest of $2,905. Assuming no interest has been accrued, which of the following correctly presents the journals entries for the purchase and the receipt of interest?

Accepted Answer

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

Question 5

On January 1, Vega Company purchased as an investment a $1,000, 8% bond for $1,000. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,080 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 6

McComb Inc. earns $900,000 and pays cash dividends for $300,000 during 2014. SFXl Corporation owns 70,000 of the 210,000 outstanding shares of McComb. How much revenue from investment should Cornwell report in 2014?

Accepted Answer

The answer of McComb Inc. earns $900,000 and pays cash...

Question 7

Charleston Co. purchased 60, 6% APS Company bonds for $60,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment would include a

Accepted Answer

Since Charleston Co. purchased 60, 6% APS Company bonds for $60,000 cash, the semiannual interest payment would be calculated as follows:

60 bonds x $1,800 interest per bond per year = $108,000 total interest per year 
$108,000 / 2 semiannual payments = $54,000 semiannual interest payment

Therefore, the entry to record the July 1 semiannual interest payment would be:

Debit Interest Receivable $54,000 
Credit Interest Revenue $54,000

Option A is incorrect because it shows a debit to Interest Receivable for only half of the semiannual interest payment.

Option C is incorrect because it shows a credit to Interest Revenue for the total annual interest payment, which is not correct for a semiannual payment.

Option D is incorrect because it shows a credit to Debt Investments, which is not affected by the interest payment.

Question 8

McComb Inc. earns $900,000 and pays cash dividends for $300,000 during 2014. 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, 2014 if the beginning of the year balance in the account was $100,000?

Accepted Answer

The answer of McComb Inc. earns $900,000 and pays cash...

Question 9

On January 1, Waverly 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, Waverly Company purchased as...

Question 10

On January 1, U.K. Enterprise purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. The bond is sold on September 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, U.K. Enterprise purchased as...

Question 11

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

Accepted Answer

The cost of a long-term debt investment includes any brokerage fees and other costs incurred to acquire the investment, as well as any accrued interest. This means that statement A, B, and C are all true statements about the accounting for long-term debt investments.

Question 12

On January 1, 2014, Chic Corp. paid $1,200,000 for 100,000 shares of Toto Company's common stock, which represents 40% of Toto's outstanding common stock. Toto reported income of $300,000 and paid cash dividends of $80,000 during 2014 Chic should report the investment in Toto Company on its December 31, 2014, balance sheet at

Accepted Answer

The answer of On January 1, 2014, Chic Corp. paid...

Question 13

Buford Industries owns 45% 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 45% of Appalachian Company....

Question 14

On January 1, Belvedere Company purchased as an investment a $1,000, 7% 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, Belvedere Company purchased as...

Question 15

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 necessarily indicate significant influence. The other factors listed (representation on the board of directors, participation in policy-making process, and dispersed common stock) are all indicators of significant influence.

Question 16

On January 1, Bay View Company purchased as an investment a $1,000, 6% bond for $1,000. The bond pays interest on January 1 and July 1. The bond is sold on September 1 for $1,050 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 17

Vangaurd Co. purchased 50, 6% McLaughlin Company bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the purchase would include debit to

Accepted Answer

The entry to record the purchase of bonds would include a debit to Debt Investments for the amount of cash paid for the bonds, which is $50,000. The other answer choices are not correct because the purchase was made with cash, not stock, and the premium or discount on the bonds was not given in the question.

Question 18

If a debt investment is sold, the investment account is

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

Charleston Co. purchased 60, 6% APS Company bonds for $60,000 cash plus brokerage fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

Accepted Answer

Since interest is payable semiannually on July 1 and January 1, the company will need to accrue 6 months' worth of interest for the period ending December 31. The calculation is as follows: $60,000 x 6% x 6/12 = $1,800. Therefore, the entry would be a debit to Interest Receivable for $1,800. Choice B is incorrect because Interest Revenue is only recognized when it is earned, which occurs when the interest is actually received. Choice C is incorrect because the interest revenue is only $1,800, not $3,600. Choice D is incorrect because it does not reflect the accrual of interest, which is the main focus of the entry.

Quiz 14: Time Value of Money