Question 1

Temporary investments

Accepted Answer

The answer of Temporary investments
...

Question 2

Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is purchased for $40 a share plus brokerage fees of $300. The entry for the purchase is:

Accepted Answer

The entry should reflect the total cost of the investment, including the brokerage fees. Therefore, the stock investment account should be debited for $4,300 ($40 x 100 shares + $300 fee) and the cash account should be credited for the same amount.

Question 3

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

Accepted Answer

The answer of On May 1, 2011, Stanton Company purchased...

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

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. What is the total cost to be debited to the Investment - Treasury Bonds account?

Accepted Answer

The total cost of the bonds is the purchase price plus the broker commission. The purchase price is $40,000 and the broker commission is $600. Therefore, the total cost is $40,000 + $600 = $40,600.

Question 6

Temporary investments are

Accepted Answer

Temporary investments are initially recorded at cost but are reported at fair market value on the balance sheet to reflect their current market value.

Question 7

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. They are held for reasons such as interest or dividend income, long-term gain potential, and influence over another business entity.

Question 8

Interest revenue on bonds is reported

Accepted Answer

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

Question 9

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

According to Generally Accepted Accounting Principles (GAAP), other comprehensive income items must be reported separately as accumulated other comprehensive income on the balance sheet, distinct from retained earnings and paid-in capital.

Question 10

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 accrued interest of $2,000 is recorded as Interest Receivable because it represents interest earned but not yet received.

Question 11

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, 2011, 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 on April 1, 2011, will include a debit to Investments - Tetter Company for $50,000 to record the purchase of the bonds at 100, which is their face value. The accrued interest of $2,000 will be included in the purchase price, so there is no need to credit Interest Payable or record a separate transaction for it. There will also be a credit to Cash for $50,000 to reflect the payment made for the bonds.

Question 12

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

Ruben Company purchased the bond at 100 plus $1,500 in accrued interest, which means they paid $101,500 in total for the bond. The bond interest rate is 8%, so the semi-annual interest payment would be $4,000 ($100,000 x 8% x 6/12). Since Ruben Company did not own the bond for the full six-month period to receive the full $4,000 interest payment, they only accrued $1,500 in interest at the time of purchase. Therefore, they need to record the receipt of $4,000 in interest on the next interest payment date by debiting Cash $4,000 and crediting Interest Receivable $1,500 and Interest Revenue $2,500 ($1,500 to reflect the accrued interest already paid at the time of purchase and $2,500 for the remaining interest earned).

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

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 common example of an item that falls under the category of Other Comprehensive Income. Other examples may include unrealized gains or losses on available-for-sale securities or changes in the value of certain derivatives. These items are not included in net income but are reported separately in the Statement of Comprehensive Income.

Question 15

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 16

Comprehensive income does affect net income or retained earnings.

Accepted Answer

Comprehensive income includes certain gains or losses that are excluded from the calculation of net income, but they can still impact retained earnings. Therefore, comprehensive income does affect net income or retained earnings.

Question 17

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

Accepted Answer

Investing in temporary investments is done to earn interest revenue, receive dividends, and realize 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 as it falls under the category of strategic investments, not temporary investments.

Question 18

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 19

Investment is 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 is certificates of deposit and other...

Question 20

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 interest revenue for July 1 will only cover the interest from the semiannual period starting on January 1 (since the bonds were purchased between interest dates). Therefore, the interest revenue will be:

$40,000 x 12% x 6/12 = $2,400

However, the $600 broker commission must be deducted, so the net interest revenue is:

$2,400 - $600 = $1,800

Since the question is asking for the interest revenue recorded on July 1, and we already recorded $1,800 in interest revenue on January 1, we only need to record the interest accrued for the period between January 1 and July 1, which is: