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Exam 15: Investments and Fair Value Accounting

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Question 61

True/False

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Growth firms generally pay regular dividends to stockholders.

A) True
B) False

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Question 62

Multiple Choice

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Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives?

A) debit Investment in Worton Corporation; credit Cash
B) debit Cash; credit Dividend Revenue
C) debit Investment in Worton Corporation; credit Income of Worton Corporation
D) debit Cash; credit Investment in Worton Corporation

E) A) and C)
F) B) and C)

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Question 63

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

On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1, 2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on September 1?

For accounting purposes, the method used to account for investments in common stock is determined by

Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.

Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show

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:

A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a dividend of $0.40 per share. The market value of the stock is $16 per share. The company's dividend yield is:

Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the

Interest revenue on bonds is reported

When the cost method is used to account for an investment, the carrying value of the investment is affected by

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase would include:

Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to

The income statement for Hudson Company reported net income of $345,000 for the year ended December 31, 2012 before considering the following: During the year the company purchased trading securities. At year end, the fair value of the investment portfolio was $23,000 less than cost. The balance of retained earnings was $823,000 on December 31, 2011. Hudson Company paid $43,000 in cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

The account Unrealized Gain (Loss) on Trading Securities should be included in the

The equity method of accounting for investments

Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

When a corporation owns less than 20% of the stock of another company, dividends received are not treated as income.

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