Question 1

A short-term investment in a U.S.Treasury bill costs $24,200 and will mature in six months at $25,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

Accepted Answer

The cash received at maturity is $25,000. The initial investment was $24,200, so the difference of $800 is recognized as interest income.

Question 2

Distinguish between the financial statement presentation of unrealized gains and losses related to trading securities and the financial statement presentation of unrealized gains and losses related to available-for-sale securities.

Accepted Answer

The answer of Distinguish between the financial statement presentation of...

Question 3

Available-for-sale debt securities are valued on the balance sheet at

Accepted Answer

Available-for-sale debt securities are valued at fair value on the balance sheet. This means that the securities are periodically revalued at their current market value, and any unrealized gains or losses are reported in the other comprehensive income section of the balance sheet.

Question 4

When a corporation owns more than 50 percent of the voting stock in another corporation,it usually should report its investment by using (the)

Accepted Answer

When one corporation owns more than 50% of the voting stock in another corporation, it has a controlling interest and should consolidate the financial statements of the subsidiary with its own financial statements. Therefore, the correct method for reporting the investment is D) consolidated financial statements. The equity method (A) is used for investments in which the investor has significant influence, but not control. The cost adjusted to market method (B) is used for investments in which the investor has no significant influence or control. The book value method (C) is not a recognized method for reporting investments in another corporation.

Question 5

Foltz Corporation purchased 3,000 shares of Craver Corporation common stock for $160 per share on January 1,2013,as a long-term investment.Craver reported net income of $140,000 and $180,000 for 2013 and 2014,respectively,and paid dividends of $50,000 and $60,000 during 2013 and 2014,respectively.Craver has a total of 10,000 shares outstanding.Compute the following amounts:
a. Investment income recognized by Foltz Corporation during 2013
b. Balance of Investment in Craver Corporation account at end of 2013
c. Amount of investment income recognized by Foltz Corporation during 2014
d. Balance of Investment in Craver Corporation account at end of 2014

Accepted Answer

The answer of Foltz Corporation purchased 3,000 shares of Craver...

Question 6

Discuss the financial statement presentation of the account Allowance to Adjust Short-Term Investments to Market,distinguishing between the effect of a debit balance and the effect of a credit balance in the account.

Accepted Answer

The answer of Discuss the financial statement presentation of the...

Question 7

When bonds are intended to be held to maturity,they are accounted for at

Accepted Answer

When bonds are intended to be held to maturity, they are accounted for at cost adjusted for the amortization of their discount or premium. This method is known as the amortized cost method, which allows the bond issuer to spread the bond discount or premium over the life of the bond, resulting in a constant interest expense. The fair value of the bond may fluctuate during the life of the bond, but when the bond is held to maturity, the investor will receive the full face value of the bond regardless of its fair value. Therefore, fair value accounting is not appropriate for bonds held to maturity.

Question 8

When the accounting period ends before U.S.Treasury bills are scheduled to mature,the investor's adjusting entry would include a

Accepted Answer

The adjusting entry would include a debit to Short-Term Investments to recognize the investment in Treasury bills that have not yet matured.

Question 9

Held-to-maturity securities are valued on the balance sheet at

Accepted Answer

Held-to-maturity securities are reported at amortized cost, which is the original cost adjusted for the effects of interest.

Question 10

Company A purchases U.S.Treasury bills for $23,700.This investment will be held to maturity.The bills will mature in 90 days at $24,000.The entry to record the initial investment will include a

Accepted Answer

When Company A purchases U.S. Treasury bills for $23,700, it will debit the Short-Term Investments account for the same amount. There is no need to credit any account at this point since it is a cash purchase. The Interest Receivable account is only used when the investment earns interest, which is not the case in this scenario. The entry to record the maturity of the bills would be a debit to Cash for $24,000 and a credit to Short-Term Investments for $23,700, with a credit to Interest Revenue for $300.

Question 11

How is the purchase of long-term investments in bonds accounted for when purchased between interest payment dates?

Accepted Answer

The answer of How is the purchase of long-term investments...

Question 12

If the maturity date of Treasury bills is less than 90 days,they are classified as

Accepted Answer

Treasury bills with maturity dates less than 90 days are considered a readily marketable security with a high degree of liquidity and little risk of changes in value. Therefore, they are classified as cash equivalents in financial statements.

Question 13

When a company receives a dividend from its investee,what will be the effect on the financial statements of the investing company if it uses the equity method?

Accepted Answer

The answer of When a company receives a dividend from...

Question 14

Winters Corporation purchased 15,000 shares of Poores Corporation common stock for $60 per share on January 2,2014.Poores Corporation reported net income of $1,500,000 for 2014 and paid dividends of $300,000 during 2014.Poores has a total of 50,000 shares of common stock outstanding.The entry that would be recorded to recognize the income is:

Accepted Answer

The investment in Poores Corporation needs to be adjusted for both the net income and dividends received. The net income of $1,500,000 represents earnings for the year, which would increase the value of the investment by $450,000 ([$1,500,000 net income ÷ 50,000 shares] × 15,000 shares). The dividends paid of $300,000 represent a return of investment, which would decrease the value of the investment by $300,000. Therefore, the entry to recognize the income would be to debit Investment in Poores Corporation for $450,000 ([$1,500,000 net income ÷ 50,000 shares] × 15,000 shares) and credit Income, Poores Corporation Investment for $450,000 (the portion of the investment income earned during the current year).

Question 15

On January 1,2014,Woodside Corporation purchased 5,000 shares of Nieman Corporation common stock for $120 per share.Woodside's investment represents 30 percent of the total outstanding shares of Nieman.During 2014,Nieman paid total dividends of $200,000.Woodside appropriately used the equity method to account for this investment and accordingly reported the investment at a carrying value of $780,000 on December 31,2014.Compute the amount of earnings reported by Nieman Corporation for 2014.

Accepted Answer

The answer of On January 1,2014,Woodside Corporation purchased 5,000 shares...

Question 16

When a company purchases debt securities,it records them at

Accepted Answer

When a company purchases debt securities, it records them at cost plus commissions and fees. This is because the commissions and fees are part of the cost of acquiring the securities.

Question 17

Winters Corporation purchased 15,000 shares of Poores Corporation common stock for $60 per share on January 2,2014.Poores Corporation reported net income of $1,500,000 for 2014 and paid dividends of $300,000 during 2014.Poores has a total of 50,000 shares of common stock outstanding.The entry that would be recorded to recognize the receipt of cash dividend is:

Accepted Answer

The answer of Winters Corporation purchased 15,000 shares of Poores...

Quiz 19: Accounting for Investments