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Exam 15: Investments and Fair Value Accounting

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Question 41

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Held-to-maturity securities are reported on the balance sheet at fair market value.

A) True
B) False

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Question 42

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The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

A) cost method
B) market method
C) income method
D) equity method

E) None of the above
F) C) and D)

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Question 43

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Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.

It is possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds.

Temporary investments are recorded at their cost which would include broker's commissions.

Comprehensive income must be reported on the income statement.

Any difference between the fair market values of the securities and their cost is a realized gain or loss.

Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Present entries to record the following selected transactions:

Newville Corporation reported net income of $50,000 in 2015. They have 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 common stock outstanding. During 2012 Newville paid the preferred stockholder's a $6 per share dividend and also paid $30,000 to common shareholders. The market value of Newville's stock is: Preferred - $105 and Common - $10. (1) Calculate Newville's dividend yield. (2) Why does the dividend yield vary widely across firms?

Define (1) debt securities and (2) equity securities. Include their similarities and differences in your discussion.

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2015. Marco reported net income of $95,000 and declared dividends of $35,000 during 2015. How much would Ramiro adjust their investment in Marco Company under the equity method?

The amortization of discounts or premiums are recorded as part of interest income on the income statement.

Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.

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

When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)

What is comprehensive income? How is it calculated? What are some examples of items included in other comprehensive income? Where is comprehensive income reported?

Trading securities should be reported on the financial statements at fair market value.

The equity method is usually more appropriate for accounting for investments where the purchaser does have significant influence over the investee.

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the