Question 1

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

Accepted Answer

The answer of On June 1, $40,000 of treasury bonds...

Question 2

Foreign currency translation adjustment is an example of an item that would be included in Other Comprehensive Income.

Accepted Answer

Foreign currency translation adjustment is a component of Other Comprehensive Income.

Question 3

Long-term investments are held for all of the listed reasons below except

Accepted Answer

Long-term investments are not held to meet current cash needs but rather for future financial security or for earning interest and dividend income, capital appreciation, or influence over another business entity.

Question 4

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the purchase would be:

Accepted Answer

The answer of Ruben Company purchased $100,000 of Evans Company...

Question 5

Temporary investments such as in trading securities are

Accepted Answer

Temporary investments such as trading securities are recorded at their original purchase cost but are reported on the balance sheet at their fair market value. This is because these investments are typically actively traded and their value can fluctuate frequently, so it is important to report them at their current market value rather than just the price they were initially purchased at.

Question 6

On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on June 30, 2014, will include:

Accepted Answer

The answer of On May 1, 2014, Stanton Company purchased...

Question 7

Temporary investments

Accepted Answer

The answer of Temporary investments
...

Question 8

Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include:

Accepted Answer

The answer of Jacks Corporation purchases $200,000 bonds plus accrued...

Question 9

Interest revenue on bonds is reported

Accepted Answer

The answer of Interest revenue on bonds is reported
...

Question 10

The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

Accepted Answer

This is in accordance with Generally Accepted Accounting Principles (GAAP) which requires that other comprehensive income be reported separately on the balance sheet.

Question 11

Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:

Accepted Answer

The answer of Investment in certificates of deposit and other...

Question 12

Comprehensive income must be reported on the income statement.

Accepted Answer

Comprehensive income is reported in a separate statement of comprehensive income or in the statement of changes in equity, not in the income statement.

Question 13

Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be:

Accepted Answer

The answer of Ruben Company purchased $100,000 of Evans Company...

Question 14

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?

Accepted Answer

The total cost to be debited to the Investment - Treasury Bonds account includes the purchase price and the broker commission.

Purchase price = $50,000 
Broker commission = $500

Therefore, the total cost to be debited to the Investment - Treasury Bonds account is $50,000 + $500 = $50,500.

Question 15

On April 1, 2011, Albert Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Albert received its first semiannual interest. On February 1, 2012, Albert sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Albert will record on April 1, 2011 for the purchase of the bonds will include:

Accepted Answer

The journal entry for the purchase of the bonds would include a debit to Investments - Tetter Company for the cost of the bonds, which in this case is $50,000. The credit to Interest Payable for $2,000 would be recorded on the books of Tetter Company, not Albert Company. The $50,000 cost of the bonds would be paid in cash, so there would be a debit to Cash for $50,000. Threfore, the correct option is (D).

Question 16

The cumulative effects of other comprehensive income items is included in retained earnings, on the balance sheet.

Accepted Answer

The answer of The cumulative effects of other comprehensive income...

Question 17

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is purchased for $45 a share plus brokerage fees of $280. The entry for the purchase is:

Accepted Answer

The total cost of the investment includes both the purchase price of the shares and the brokerage fees, so the entry should reflect the total cash outflow of $4,780 ($4,500 for the shares plus $280 in fees).

Question 18

Which of the following is not a reason to invest excess cash in temporary investments?

Accepted Answer

Investing excess cash in temporary investments is done to earn additional revenue or returns on the cash. Other reasons include receiving interest revenue, dividends, or realizing gains from the increase in market value of the securities. However, influencing the operations of another company is not a reason to invest excess cash in temporary investments.

Question 19

Comprehensive income does not affect net income or retained earnings.

Accepted Answer

Comprehensive income includes items such as unrealized gains or losses on investments, which are not included in net income but are reflected in the overall financial performance of the company. Therefore, comprehensive income does impact both net income and retained earnings.

Question 20

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the receipt of interest on the next interest payment date would be:

Accepted Answer

Since Ruben Company purchased the bond at 100 plus $1,500 in accrued interest, it means that they paid $100,000 + $1,500 = $101,500.

The bond has an interest rate of 8% and interest is paid semi-annually, which means that the bond pays 4% interest every six months.

On the next interest payment date, Ruben Company is entitled to receive half a year's worth of interest, which is $100,000 x 4% x 6/12 = $2,000.

However, since they purchased the bond with $1,500 in accrued interest, they will receive a total of $2,000 + $1,500 = $3,500.

The journal entry to record the receipt of interest on the next interest payment date would be:

Debit: Cash $4,000 (since they will receive $3,500 in cash)

Credit: Interest Receivable $1,500 (to reduce the amount of interest receivable from the previous period)

Credit: Interest Revenue $2,500 (to record the interest revenue earned during the current period)

Therefore, the best choice is C.

Quiz 15: Investments and Fair Value Accounting