Question 1

On August 1, 2008, Witten Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2008, and mature on April 30, 2014, with interest paid each October 31 and April 30. The bonds will be added to Witten's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2008 is

Accepted Answer

Dr. Available-for-Sale Securities: 200 × $1,000 × .97 = $194,000
 Dr. Interest Revenue: $200,000 × .045 × 3/6 = $4,500
Cr. Cash: $194,000 + $4,500 = $198,500.

Question 2

Oliver Company purchased $400,000 of 10% bonds of McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1, 2018; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Oliver Company uses the effective-interest method and plans to hold these bonds to maturity.
-On July 1, 2008, Oliver Company should increase its Held-to-Maturity Debt Securities account for the McGee Co. bonds by

Accepted Answer

($376,100 × .055) - ($400,000 × .05) = $686.

Question 3

Oliver Company purchased $400,000 of 10% bonds of McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1, 2018; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Oliver Company uses the effective-interest method and plans to hold these bonds to maturity.
-For the year ended December 31, 2008, Oliver Company should report interest revenue from the McGee Co. bonds of

Accepted Answer

$376,100 × .055 = $20,686
($376,100 + $686) × .055 - $20,723; $20,686 + $20,723 = $41,409.

Question 4

On October 1, 2008, Porter Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2017, pay interest semiannually on February 1 and August 1. Porter uses the straight-line method of amortization. The bonds should be reported in the December 31, 2008 balance sheet at a carrying value of

Accepted Answer

$975,000 + ($25,000 × 3/100) = $975,750.

Question 5

On November 1, 2008, Little Company purchased 600 of the $1,000 face value, 9% bonds of Player, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2013, pay interest semiannually on March 1 and September 1. Assuming that Little uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Little's December 31, 2008, balance sheet at

Accepted Answer

$632,000 - $9,000 = $623,000
$623,000 - ($23,000 × 2/50) = $622,080.

Question 6

On November 1, 2008, Morton Co. purchased Gomez, Inc., 10-year, 9% bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2015. Morton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Morton's 2008 income statement as a result of Morton's available-for-sale investment in Gomez was

Accepted Answer

($250,000 × .045) + ($25,000 × 2/80) - $7,500 = $4,375.

Question 7

On October 1, 2008, Lyman Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2012. Lyman uses straight-line amortization. Ignoring income taxes, the amount reported in Lyman's 2008 income statement from this investment should be

Accepted Answer

($200,000 × .09 × 3/12) - ($8,000 × 3/50) = $4,020.

Question 8

On January 1, 2008, Alton Co. purchased $100,000 of 10%, Olson, Inc. bonds with interest payable on July 1 and January 1 for $107,000. On February 1, 2008, Alton purchased $100,000 of 12%, Ehrlich Co. bonds with interest payable on August 1 and February 1 for $95,000. Alton classifies the Olson and Ehrlich bonds as trading debt securities. On December 31, 2008, the fair value of the Olson and Ehrlich bonds are $110,000 and $94,000, respectively. At December, 2008, what adjusting entry should be made by Alton?

Accepted Answer

($110,000 + $94,000) - ($107,000 + $95,000) = $2,000.

Question 9

On January 3, 2008, Slezak Company purchased 22% of Urban Corporation's common stock for $250,000. Shortly after the purchase, Slezak Company executives tried to obtain representation on Urban Corporation's board of directors and failed. During 2008, Urban reported net income of $150,000 and paid cash dividends of $80,000 on the common stock. The balance in Slezak Company's Investment in Urban Corporation account at December 31, 2008, should be

Accepted Answer

No significant influence.

Question 10

On its December 31, 2007, balance sheet, Quinn Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2008, the fair value of the securities was $585,000. What should Quinn report on its 2008 income statement as a result of the increase in fair value of the investments in 2008?

Accepted Answer

$0 (available-for-sale securities).

Question 11

During 2007, Ellis Company purchased 20,000 shares of Hiller Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2007. Ellis sold all of the Hiller stock for $17 per share on December 3, 2008, incurring $14,000 in brokerage commissions. Ellis Company should report a realized gain on the sale of stock in 2008 of

Accepted Answer

[(20,000 × $17) - $14,000] - $315,000 = $11,000.

Question 12

Garrison Co. owns 20,000 of the 50,000 outstanding shares of Steele, Inc. common stock.
During 2008, Steele earns $800,000 and pays cash dividends of $640,000.
-If the beginning balance in the investment account was $500,000, the balance at December 31, 2008 should be

Accepted Answer

$500,000 + [($800,000 - $640,000) × (20,000 ÷ 50,000)] = $564,000.

Question 13

Garrison Co. owns 20,000 of the 50,000 outstanding shares of Steele, Inc. common stock.
During 2008, Steele earns $800,000 and pays cash dividends of $640,000.
-Garrison should report investment revenue for 2008 of

Accepted Answer

$800,000 × (20,000 ÷ 50,000) = $320,000.

Question 14

If Karter Company uses the equity method of accounting for its investment in Flynn Company, its Investment in Flynn Company account at December 31, 2008 should be

Accepted Answer

$300,000 + ($200,000 × .2) - ($50,000 × .2) = $330,000.

Question 15

Barry Corporation earns $240,000 and pays cash dividends of $80,000 during 2008. Glenon Corporation owns 3,000 of the 10,000 outstanding shares of Barry.
-What amount should Glenon show in the investment account at December 31, 2008 if the beginning of the year balance in the account was $320,000?

Accepted Answer

$320,000 + ($240,000 × .3) - ($80,000 × .3) = $368,000.

Question 16

Barry Corporation earns $240,000 and pays cash dividends of $80,000 during 2008. Glenon Corporation owns 3,000 of the 10,000 outstanding shares of Barry.
-How much investment income should Glenon report in 2008?

Accepted Answer

$240,000 × .3 = $72,000.

Question 17

Young Co. acquired a 60% interest in Tomlin Corp. on December 31, 2007 for $945,000. During 2008, Tomlin had net income of $600,000 and paid cash dividends of $150,000. At December 31, 2008, the balance in the investment account should be

Accepted Answer

$945,000 + ($600,000 × .6) - ($150,000 × .6) = $1,215,000.

Question 18

Stone Co. owns 4,000 of the 10,000 outstanding shares of Maye Corp. common stock. During 2008, Maye earns $120,000 and pays cash dividends of $40,000.
-If the beginning balance in the investment account was $240,000, the balance at December 31, 2008 should be

Accepted Answer

$240,000 + ($120,000 × .4) - ($40,000 × .4) = $272,000.

Question 19

Stone Co. owns 4,000 of the 10,000 outstanding shares of Maye Corp. common stock. During 2008, Maye earns $120,000 and pays cash dividends of $40,000.
-Stone should report investment revenue for 2008 of

Accepted Answer

$120,000 × .4 = $48,000.

Question 20

The following information relates to Vernon Company for 2008:
 Vernon's 2008 other comprehensive income is

Accepted Answer

$15,000 + $35,000 - $10,000 = $40,000.

Quiz 14: Investments

Garrison Co. owns 20,000 of the 50,000 outstanding shares of Steele, Inc. common stock. During 2008, Steele earns $800,000 and pays cash dividends of $640,000. -If the beginning balance in the investment account was $500,000, the balance at December 31, 2008 should be

Garrison Co. owns 20,000 of the 50,000 outstanding shares of Steele, Inc. common stock. During 2008, Steele earns $800,000 and pays cash dividends of $640,000. -Garrison should report investment revenue for 2008 of

If Karter Company uses the equity method of accounting for its investment in Flynn Company, its Investment in Flynn Company account at December 31, 2008 should be

Barry Corporation earns $240,000 and pays cash dividends of $80,000 during 2008. Glenon Corporation owns 3,000 of the 10,000 outstanding shares of Barry. -What amount should Glenon show in the investment account at December 31, 2008 if the beginning of the year balance in the account was $320,000?

Barry Corporation earns $240,000 and pays cash dividends of $80,000 during 2008. Glenon Corporation owns 3,000 of the 10,000 outstanding shares of Barry. -How much investment income should Glenon report in 2008?

Young Co. acquired a 60% interest in Tomlin Corp. on December 31, 2007 for $945,000. During 2008, Tomlin had net income of $600,000 and paid cash dividends of $150,000. At December 31, 2008, the balance in the investment account should be

Stone Co. owns 4,000 of the 10,000 outstanding shares of Maye Corp. common stock. During 2008, Maye earns $120,000 and pays cash dividends of $40,000. -If the beginning balance in the investment account was $240,000, the balance at December 31, 2008 should be

Stone Co. owns 4,000 of the 10,000 outstanding shares of Maye Corp. common stock. During 2008, Maye earns $120,000 and pays cash dividends of $40,000. -Stone should report investment revenue for 2008 of

The following information relates to Vernon Company for 2008: Vernon's 2008 other comprehensive income is