Question 1

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 debit to

Accepted Answer

The purchase price of the bonds is $80,000, so a debit of $80,000 would be made to Debt Investments. There is no indication that Vanguard paid more than the face value of the bonds, so option A is incorrect. Cash paid was $80,000, not $84,000, so option B is incorrect. Option D is incorrect because the investment was in bonds, not stock.

Question 2

On January 1, 2017, Tri-State Company purchased at face value, a $1,000, 5%, 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, 2018 is

Accepted Answer

The answer of On January 1, 2017, Tri-State Company purchased...

Question 3

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....

Question 4

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...

Question 5

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 6

McComb Inc. earns $1,350,000 and pays cash dividends for $450,000 during 2017. SFX Corporation owns 70,000 of the 210,000 outstanding shares of McComb. How much revenue from investment should SFX report in 2017?

Accepted Answer

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

Question 7

Charleston Co. purchased 60, 6% APS Company bonds on January 1, 2017 for $60,000 cash. Interest is payable annually on January 1. The entry to record the January 1, 2018 annual interest payment would include a

Accepted Answer

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

Question 8

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 9

McComb Inc. earns $1,350,000 and pays cash dividends for $450,000 during 2017. 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, 2017 if the beginning of the year balance in the account was $150,000?

Accepted Answer

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

Question 10

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...

Question 11

Charleston Co. purchased 60, 6% APS Company bonds on January 1, 2017 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

Since the interest is payable annually on January 1, the company has earned interest for the entire year (12 months) ending on December 31. Therefore, at the end of the year, the company needs to accrue the interest that has been earned but not yet received. To record the accrual, the company will debit Interest Receivable (an asset account) to show that it has earned the interest but has not yet received it, and credit Interest Revenue (a revenue account) to recognize the income earned. Option A correctly identifies the debit to Interest Receivable for $3,600. Option B is incorrect because it incorrectly identifies the debit as Interest Revenue. Option C is incorrect because it incorrectly identifies the credit as Cash Revenue. Option D is incorrect because it suggests a debit to Debt Investments, which is not affected by the interest accrual.

Question 12

Which of the following is a true statement about the accounting for long-term debt investments?

Accepted Answer

Long-term debt investments are initially recorded at cost, which includes any brokerage fees. These investments can include both government and corporation bonds.

Question 13

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 14

Porter Brothers Company purchased a debt investment for $80,000 on January 1, 2017. On January 1, 2018, 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 15

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 16

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 17

If a debt investment is sold, the investment account is

Accepted Answer

When a debt investment is sold, the investment account is credited for the cost of the bonds at the sale date to remove the investment from the books.

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 do not necessarily indicate significant influence. The other factors, such as representation on the board of directors and participation in policy-making, suggest that the investor has the ability to influence the investee's decisions and operations. The dispersion of common stock held by other stockholders does not necessarily have a bearing on the investor's influence.

Question 19

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...

Question 20

On January 1, 2017, 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 2017 Chic should report the investment in Toto Company on its December 31, 2017, balance sheet at

Accepted Answer

The carrying amount of the investment on December 31, 2017, should be equal to the initial cost plus the investor's share of the investee's income and dividends.

Initial cost = $750,000
Investor's share of income = 25% x $300,000 = $75,000
Investor's share of dividends = 25% x $80,000 = $20,000

Carrying amount = $750,000 + $75,000 - $20,000 = $805,000

Quiz 15: Specimen Financial Statements: Pepsico, Inc