Question 1

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2015. Marco reported net income of $95,000 and declared dividends of $35,000 during 2015. How much would Ramiro adjust their investment in Marco Company under the equity method?

Accepted Answer

The answer of Ramiro Company purchased 40% of the outstanding...

Question 2

Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for 2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

Accepted Answer

The answer of Gerardo Company had a net income of...

Question 3

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Accepted Answer

The answer of Purchased $400,000 of ABC Co. 5% bonds...

Question 4

On October 1, 2012, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8 1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, 2012, the date of the last semi-annual interest payments. Journalize the purchase.

Accepted Answer

The answer of On October 1, 2012, Marcus Corporation purchased...

Question 5

On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?

Accepted Answer

The answer of On May 1, 2012, Chase Inc. purchases...

Question 6

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31, 2012 before considering the following:
During the year the company purchased trading securities. At year end, the fair value of the investment portfolio was $23,000 less than cost.
The balance of retained earnings was $823,000 on December 31, 2011. Hudson Company paid $43,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

Accepted Answer

The answer of The income statement for Hudson Company reported...

Question 7

Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.

Accepted Answer

The answer of Compare and contrast why companies invest cash...

Question 8

Define (1) debt securities and (2) equity securities. Include their similarities and differences in your discussion.

Accepted Answer

The answer of Define (1) debt securities and (2) equity...

Question 9

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, 6% Manus Corporation bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when purchasing the bonds?

Accepted Answer

The answer of On May 1, 2015, Chase Inc. purchases...

Question 10

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include:

Accepted Answer

The answer of On February 12, Addison, Inc. purchased 6,000...

Question 11

Herberto Company had a net income of $74,000, and other comprehensive loss of $8,500 for 2012. On January 1, 2012, the Retained Earnings balance was $425,000 and the Accumulated Other Comprehensive Income balance was $52,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.

Accepted Answer

The answer of Herberto Company had a net income of...

Question 12

The income statement for Dodson Corporation reported net income of $22,400 for the year ended December 31, 2012 before considering the following:
During the year the company purchased available-for-sale securities. At year end, the fair value of the investment portfolio was $2,100 more than cost.
The balance of retained earnings was $83,000 on December 31, 2011. Dobson Corporation paid $9,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

Accepted Answer

The answer of The income statement for Dodson Corporation reported...

Question 13

On January 1, 2012, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2012, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31, 2012.

Accepted Answer

The answer of On January 1, 2012, Valuation Allowance for...

Question 14

On August 1, 2011, Airport Company sold Paxton Company $1,000,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, 2012, Paxton sold half of the bonds for $520,000 plus accrued interest. Present entries to record the following transactions:

Accepted Answer

The answer of On August 1, 2011, Airport Company sold...

Question 15

On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.

Accepted Answer

The answer of On April 1, 2015, ValueTime, Inc. had...

Question 16

Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito adjust their investment in Reyes Company under the equity method?

Accepted Answer

The answer of Pepito Company purchased 40% of the outstanding...

Question 17

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

Accepted Answer

The answer of On May 1, 2015, Chase Inc. purchases...

Question 18

Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1, 2012. Roberts reported net income of $155,000 and declared dividends of $40,000 during 2012. How would these events be reported by Sutton using the cost method?

Accepted Answer

The answer of Sutton Company purchased 10% of the outstanding...

Question 19

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase would include:

Accepted Answer

The journal entry to record the purchase of 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee would be a debit to Investments for $132,240 ($22 x 6,000 shares + $240 brokerage fee).

Question 20

Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97. The journal entry for the purchase would include:

Accepted Answer

When purchasing bonds, the buyer must record the accrued interest owed to the seller. This means that Interest Receivable must be debited in the journal entry for the purchase. Option A and B are incorrect because Interest Receivable cannot be credited since it represents an asset that the company owes to the seller. Option D is incorrect because Interest Revenue should not be debited at this point, as no interest income has been received yet from the bond investment.

Quiz 13: Investments and Fair Value Accounting