Question 1

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\) The entry to record the purchase of the Wayne Corporation common stock is:

Accepted Answer

Based on the given information, the purchase of Wayne Corporation common stock is the only investment mentioned and it was purchased for $200,000. Therefore, the correct entry would be Long-Term Investments 200,000 and Cash 200,000.

Question 2

Wetzel Company has a credit balance of $88,000 in its Allowance to Adjust Long-Term Investments to Market account at the end of the year,before adjustment.Its investment portfolio has a total cost of $600,000 and a market value of $528,000 at December 31,a balance sheet date.The year-end adjustment entry that would be recorded in the books of Wetzel Company is:

Accepted Answer

The answer of Wetzel Company has a credit balance of...

Question 3

A credit balance in the account Allowance to Adjust Long-Term Investments to Market is disclosed in the financial statements as a

Accepted Answer

A credit balance in the account Allowance to Adjust Long-Term Investments to Market is a contra account to Long-Term Investments. It is used to record adjustments to the market value of long-term investments. Therefore, it is disclosed in the financial statements as a contra account to Long-Term Investments.

Question 4

Mucura Enterprises has a credit balance of $40,000 in its Allowance to Adjust Long-Term Investments to Market account before adjustment.Its investment portfolio has a total cost of $250,000 and a market value of $225,000.The year-end adjustment entry that would be recorded in the books of Mucura Enterprises is:

Accepted Answer

The adjustment to the Allowance to Adjust Long-Term Investments to Market account should be equal to the difference between the total cost and market value of the investment portfolio, which is $25,000 ($250,000 - $225,000). Since the credit balance in the allowance account is already $40,000, the adjustment should be a debit of $15,000 ($40,000 - $25,000) to the allowance account and a credit of $15,000 to the Unrealized Loss on Long-Term Investments account. Therefore, option B is the correct entry.

Question 5

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\)
 The entry to record the sale of 1,000 shares of Wayne Corporation common stock is:

Accepted Answer

The sale of 1,000 shares at $38 each results in cash of $38,000. The original cost was $40 per share, totaling $40,000 for 1,000 shares, leading to a $2,000 loss.

Question 6

Clay Corporation owns a 40 percent interest in the stock of Gilmer Corporation.During 2013,Gilmer pays $25,000 in dividends to Clay and reports $107,000 in net income.Clay Corporation's investment in Gilmer will increase Clay's income before income taxes by

Accepted Answer

The answer of Clay Corporation owns a 40 percent interest...

Question 7

Under the cost-adjusted-to-market method of accounting for an investment,

Accepted Answer

The answer of Under the cost-adjusted-to-market method of accounting for...

Question 8

Rapp Corporation has invested in the stock of two other corporations,Hart Corporation and Hilker Corporation.Rapp does not own a controlling interest or exercise significant influence over either corporation.Rapp's accountant is preparing financial statements and has compiled the following information: $\begin{array}{|cccc|}
\hline \text { Stock name } & \text { No. of shares } & \text { Cost } & \text { Market } \
\text { Hart } & 1,000 & \$ 23,000 & \$ 24,000 \
\text { Hilker } & 500 & \$ 27,500 & \$ 25,500 \
\hline
\end{array}$ What should be the balance in the Allowance to Adjust Long-Term Investments to Market account,based on the above information?

Accepted Answer

The answer of Rapp Corporation has invested in the stock...

Question 9

The equity method generally should be used to account for an investment in stock when the level of ownership is

Accepted Answer

According to accounting standards, the equity method should be used to account for an investment in stock when the level of ownership is between 20 and 50 percent. This method allows for the investor to recognize their share of the investee's profits and losses on their own financial statements.

Question 10

Wirt Corporation owns 25 percent of the voting stock of Wood Corporation and accounts for the investment using the equity method.Wood reports a net loss of $20,000.Wirt Corporation's entry to record its share of loss is:

Accepted Answer

Under the equity method, Wirt Corporation would record its share of Wood Corporation's net loss by debiting a loss account and crediting the investment account for its share of the loss, which is 25% of $20,000, or $5,000.

Question 11

The cost-adjusted-to-market method of accounting for investments is used when the investment is

Accepted Answer

The answer of The cost-adjusted-to-market method of accounting for investments...

Question 12

All of the following are ways one corporation could affect the operating and financial policies of another corporation except

Accepted Answer

Analysis of data regarding profitability may provide insights and information, but it is not a direct action that one corporation can take to affect the operating and financial policies of another corporation. Material transactions, representation on the board of directors, and exchange of managerial personnel are all actions that can directly influence another corporation's policies.

Question 13

When the equity method is used to account for a long-term investment in stock of another company,the carrying value of the investment is affected by

Accepted Answer

When the equity method is used, the carrying value of the investment is adjusted based on the earnings and dividends of the investee. Any declines in the market value of the stock are not reflected in the carrying value. An excess of market price over cost would only be relevant if the investor decided to sell the investment.

Question 14

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\)
 The entry to set up the Allowance to Adjust Long-Term Investments to Market in 2012 is:

Accepted Answer

The answer of Use this information to answer the following...

Question 15

The ability of an investing company to affect the operating and financial policies of another company,even though the investor holds less than 50 percent of the voting stock,is known as

Accepted Answer

Significant influence refers to the ability of an investor to affect the operating and financial policies of another company, even if they hold less than 50 percent of the voting stock. Control, on the other hand, refers to the ability to determine the operating and financial policies of the company. Minority interest refers to the ownership of less than 50 percent of the voting stock, while non-influential control is not a commonly used term in the context of investing. Therefore, the best choice is A.

Question 16

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\)
 The entry to record the receipt of the cash dividend from Upshur Corporation is:

Accepted Answer

The entry to record the receipt of the cash dividend from Upshur Corporation is:Debit Cash for $900Credit Dividend Income for $900

Question 17

When the cost-adjusted-to-market method is used to account for a long-term investment in stock of another company,the carrying value of the investment is directly affected by

Accepted Answer

The answer of When the cost-adjusted-to-market method is used to...

Question 18

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\)
 The entry to adjust the Allowance to Adjust Long-Term Investments to Market in 2013 is:

Accepted Answer

The answer of Use this information to answer the following...

Question 19

Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

Accepted Answer

When using the equity method, the investor records their share of the investee's profits or losses in their own financial statements. In this case, Flubber Corporation owns 40% of Rhim Corporation's voting stock, so they would record their share of Rhim's net loss of $30,000 as a reduction to the Investment in Rhim Corporation account. Since Flubber's share of the loss would be 40% of $30,000 or $12,000, the entry would be: Loss, Rhim Corporation Investment $12,000; Investment in Rhim Corporation $12,000.

Question 20

For available-for-sale equity securities,the Unrealized Loss on Long-Term Investments account should be reported as a(n)

Accepted Answer

The Unrealized Loss on Long-Term Investments account reflects the change in value of available-for-sale equity securities that have not been sold. As it is not a realized loss item, it should not be reported on the income statement. It is also not a prior period adjustment or an extraordinary item. Instead, it should be reported as a separate item in the stockholders' equity section of the balance sheet, which shows the difference between the fair value and the cost of the investments.

Quiz 15: Investments

A credit balance in the account Allowance to Adjust Long-Term Investments to Market is disclosed in the financial statements as a

Clay Corporation owns a 40 percent interest in the stock of Gilmer Corporation.During 2013,Gilmer pays $25,000 in dividends to Clay and reports $107,000 in net income.Clay Corporation's investment in Gilmer will increase Clay's income before income taxes by

Under the cost-adjusted-to-market method of accounting for an investment,

The equity method generally should be used to account for an investment in stock when the level of ownership is

Wirt Corporation owns 25 percent of the voting stock of Wood Corporation and accounts for the investment using the equity method.Wood reports a net loss of $20,000.Wirt Corporation's entry to record its share of loss is:

The cost-adjusted-to-market method of accounting for investments is used when the investment is

All of the following are ways one corporation could affect the operating and financial policies of another corporation except

When the equity method is used to account for a long-term investment in stock of another company,the carrying value of the investment is affected by

The ability of an investing company to affect the operating and financial policies of another company,even though the investor holds less than 50 percent of the voting stock,is known as

When the cost-adjusted-to-market method is used to account for a long-term investment in stock of another company,the carrying value of the investment is directly affected by

Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

For available-for-sale equity securities,the Unrealized Loss on Long-Term Investments account should be reported as a(n)