Question 1

Cantor Corporation's balance sheet at December 31, 2013, showed the following:
Short-term investments, at fair value $46,500
Cantor Corporation's trading portfolio of stock investments consisted of the following at December 31, 2013: $\begin{array}{llr}\text { Investment }&\text { Number of Shares } &\text { Cost }\
\hline \text { Interstate Common Stock } & 200 & \$ 30,000 \
\text { Danforth Preferred Stock } & 400 & 6,000 \
\text { Georgin Common Stock } & 300 & 9,000 \
\hline &&\$ 4500
\end{array}$
 During 2014, the following transactions took place:
Feb. 5  $\quad $Sold 50 shares of Interstate common stock for $7,900.
Mar. 30  $\quad $Purchased 25 shares of Georgia common stock for $850.
Sept. 9  $\quad $Purchased 50 shares of Georgia common stock for $2,000.
At year end on December 31, 2014, the fair values per share were: $$\begin{array}{l}
&\text { Market Value Per Share }\
\text { Interstate Common Stock } & \$ 151.00 \
\text { Danforth Delta Preferred Stock } & \$ 13.00 \
\text { Georgin Common Stock } & \$ 33.00
\end{array}$$ Instructions
(a) Prepare the journal entries to record the 2014 stock transactions.
(b) On December 31, 2014, prepare any adjusting entry that might be necessary relative to the trading portfolio.
(c) Show how the stock investments will appear on Cantor Corporation's balance sheet at December 31, 2014.

Accepted Answer

The answer of Cantor Corporation's balance sheet at December 31,...

Question 2

Ultra Cosmetics acquired 10% of the 200,000 shares of common stock of Kardashian Fashion at a total cost of $14 per share on March 18, 2014. On June 30 Kardashian declared and paid a $96,000 dividend. On December 31 Kardashian reported net income of $244,000 for the year. At December 31 the market price of Kardashian Fashion was $16 per share. The stock is classified as available-for-sale.
Instructions
Prepare all the necessary entries for 2014 for Ultra Cosmetics.

Accepted Answer

The answer of Ultra Cosmetics acquired 10% of the 200,000...

Question 3

Information pertaining to stock investments in 2012 by Com-ex Corporation follows:
Acquired 15% of the 200,000 shares of common stock of Buffalo Company at a total cost of $9 per share on January 1, 2014. On July 1, Buffalo Company declared and paid a cash dividend of $1.90 per share. On December 31, Bufflo reported net income was $675,000 for the year.
Obtained significant influence over Eta Company by buying 30% of Eta's 120,000 outstanding shares of common stock at a total cost of $25 per share on January 1, 2014. On June 15, Eta Company declared and paid a cash dividend of $2.50 per share. On December 31, Eta's reported net income was $330,000.
Instructions
Prepare all necessary journal entries for 2012 for Com-ex Corporation.

Accepted Answer

The answer of Information pertaining to stock investments in 2012...

Question 4

Fair Value Adjustment is a valuation ____________ account, which is _______________ to (from) the cost of the investments.

Accepted Answer

The answer of Fair Value Adjustment is a valuation ____________...

Question 5

Short-term investments are securities that are _____________ and ______________ to be converted into cash within the next year.

Accepted Answer

The answer of Short-term investments are securities that are _____________...

Question 6

A company that owns more than 50% of the common stock of another company is known as the ______________ company and _____________ financial statements are usually prepared.

Accepted Answer

The answer of A company that owns more than 50%...

Question 7

Sandafor Company had these transactions pertaining to stock investments:
Feb 1  $\quad $Purchased 2,400 shares of BFF common stock (2% of outstanding shares) for $16,500 cash.
July 1  $\quad $Received cash dividends of $0.80 per share on BFF common stock.
Sept. 1  $\quad $Sold 800 shares of BFF common stock for $7,900
Dec. 1  $\quad $Received cash dividends of $.80per share on BFF common stock.
Instructions
Journalize the transactions.

Accepted Answer

The answer of Sandafor Company had these transactions pertaining to...

Question 8

On January 5, 2012, JBC Company purchased the following stock investments:
300 shares Getz Corporation common stock for $4,800.
500 shares Keller Corporation common stock for $10,000.
600 shares R-tel Corporation common stock for $18,000.
Assume that JBC Company cannot exercise significant influence over the activities of the investee companies and that the cost method is used to account for the investments.
On June 30, 2014, JBC Company received the following cash dividends: $\begin{array}{lr}
\text { Getz Corporation } &\$ 2.00 \text { per share } \
\text { Keller Corporation c } & \$ 3.00 \text { per share } \
\text { R-tel Corporation  } &\$ 1.50 \text { per share }
\end{array}$ On November 15, 2014, JBC Company sold 100 shares of R-tel Corporation common stock for $3,600.
On December 31, 2014, the fair value of the securities held by JBC Company is as follows: $\begin{array}{lr}&\text { Per Share }\
\text { Getz Corporation common stock } & \$ 12 \
\text { Keller Corporation common stock } & 16 \
\text { R-tel Corporation common stock } & 33
\end{array}$ Instructions
Prepare the appropriate journal entries that the JBC Company should make on the following dates:
January 5, 2014
June 30, 2014
November 15, 2014
December 31, 2014

Accepted Answer

The answer of On January 5, 2012, JBC Company purchased...

Question 9

An unrealized loss on trading securities is reported under Other ____________________ in the income statement.

Accepted Answer

The answer of An unrealized loss on trading securities is...

Question 10

PWAT Inc. had these transactions pertaining to investments in common stock:
Jan 1  $\quad $Purchased 2,000 shares of Pasco Corporation common stock (5% of outstanding shares) for $96,500 cash.
July 1  $\quad $Received a cash dividend of $1.70 per share.
Dec. 1  $\quad $Sold 800 shares of Pasco Corporation common stock for $40,200.
 $\quad $31  $\quad $Received a cash dividend of $1.70 per share.
Instructions
Journalize the transactions.

Accepted Answer

The answer of PWAT Inc. had these transactions pertaining to...

Question 11

La Bouisse Inc. obtained significant influence over E-Stock Corporation by buying 40% of E-Stock 30,000 outstanding shares common stock at a total cost of $11 per share on January 1, 2014. On June 15 E-Stock declared and paid a cash dividend of $32,000. On December 31 E-Stock reported a net income of $120,000 for the year.
Instructions
Prepare all the necessary journal entries for 2014 for La Bouisse Inc.

Accepted Answer

The answer of La Bouisse Inc. obtained significant influence over...

Question 12

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

Accepted Answer

The answer of An unrealized gain or loss on available-for-sale...

Question 13

Debt investments are investments in government and _____________ bonds.

Accepted Answer

The answer of Debt investments are investments in government and...

Question 14

King George Company has these data at December 31, 2014: $\begin{array}{lrr}\text { Securities } & \text { Cost } & \text { Fair Value } \
\text { Trading } & \$ 110,000 & \$ 119,000 \
\text { Available-for-sale } & 100,000 & 95,000
\end{array}$ 
The available-for-sale securities are held as a long-term investment.
Instructions
(a) Prepare the adjusting entries to report each class of securities at fair value.
(b) Indicate the statement presentation of each class of securities and the related unrealized gain (loss) accounts.

Accepted Answer

The answer of King George Company has these data at...

Question 15

At the end of an accounting period, if the fair value of the trading portfolio is less than its cost, then the company should recognize an ______________ that is reported on the _________________.

Accepted Answer

The answer of At the end of an accounting period,...

Question 16

The purchase of a company in the same industry that does the same activity is called a ______________ acquisition.

Accepted Answer

The answer of The purchase of a company in the...

Question 17

_______________ securities are bought and held primarily for sale in the near future.

Accepted Answer

The answer of _______________ securities are bought and held primarily...

Question 18

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has _______________ influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _______________ method.

Accepted Answer

The answer of When an investor owns between 20% and...

Question 19

Santos Corporation has the following trading portfolio of stock investments as of December 31, 2013. $\begin{array}{rrr} \text { Security }& \text { Cost } & \text { Fair Value } \
\mathrm{A} & \$ 17,000 & \$ 16,000 \
\mathrm{~B} & 23,000 & 25,000 \
\mathrm{C} & 32,000 & 28,000\&\$72,000&\$69,000
\end{array}$ On January 22, 2014, Santos Corporation sold security C for $30,000.
Instructions
(a) Prepare the adjusting entry for Santos Corporation on December 31, 2013 to report the portfolio at fair value.
(b) Indicate the balance sheet and income statement presentation of the fair value data for the Santos Corporation at December 31, 2013.
(c) Prepare the journal entry for the 2014 sale.

Accepted Answer

The answer of Santos Corporation has the following trading portfolio...

Question 20

Under the cost method, dividends received from an investee company are credited to the _______________ account, whereas under the equity method, dividends received from an investee company are credited to the _______________ account.

Accepted Answer

The answer of Under the cost method, dividends received from...

Quiz 14: Understanding Investments and Acquisitions in Accounting

Fair Value Adjustment is a valuation account, which is ___ to (from) the cost of the investments.

Short-term investments are securities that are _ and __ to be converted into cash within the next year.

A company that owns more than 50% of the common stock of another company is known as the __ company and _ financial statements are usually prepared.

An unrealized loss on trading securities is reported under Other ____________________ in the income statement.

An unrealized gain or loss on available-for-sale securities is reported as a separate component of _________________.

Debt investments are investments in government and _____________ bonds.

At the end of an accounting period, if the fair value of the trading portfolio is less than its cost, then the company should recognize an that is reported on the ___.

The purchase of a company in the same industry that does the same activity is called a ______________ acquisition.

_______________ securities are bought and held primarily for sale in the near future.

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has _ influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _ method.

Under the cost method, dividends received from an investee company are credited to the _ account, whereas under the equity method, dividends received from an investee company are credited to the _ account.