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Exam 12: Investments

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Question 71

Multiple Choice

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Accumulated Other Comprehensive Income in the shareholders' equity section of the balance sheet reflects changes in the fair value of securities for which type of securities?

A) Securities available for sale.
B) Trading securities.
C) Consolidated securities.
D) Held-to-maturity securities.

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

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Question 72

Multiple Choice

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On January 2,2015,Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale.Ranger's net income for the years ended December 31,2015 and 2016,were $10,000 and $50,000,respectively.During 2016,Ranger declared and paid a dividend of $60,000.There were no dividends in 2015.On December 31,2015,the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000.How much should Howdy Doody show in the 2016 income statement as income from this investment?

A) $26,000.
B) $ 7,200.
C) $20,000.
D) $27,200.

E) All of the above
F) B) and C)

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Question 73

Multiple Choice

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Goofy Inc.bought 15,000 shares of Crazy Co.'s stock for $150,000 on May 5,2015,and classified the stock as available for sale.The market value of the stock declined to $118,000 by December 31,2015.Goofy reclassified this investment as trading securities in December of 2016 when the market value had risen to $125,000.What effect on 2016 income should be reported by Goofy for the Crazy Co.shares?

When an equity security is appropriately carried and reported as securities available for sale,a gain should be reported in the income statement:

Purchases and sales of securities are always reported as investing activities in a statement of cash flows.

Under IFRS No.9,equity investments are classified as either "fair value through other comprehensive income (FVOCI)" or "fair value through profit and loss (FVPL)."

Which of the following is not true when the fair value option is elected for an investment that would normally be accounted for under the equity method?

Under IFRS No.9,debt investments are classified as either "available for sale" or "fair value through profit and loss (FVPL)."

When the investor's level of influence changes,it may be necessary to change to the equity method from another method.When the level of ownership rises from less than 20% to a range of 20% to 50%,the equity method typically would become appropriate and the investment account balance should be:

According to GAAP,companies can elect the fair value option when accounting for many investments. Required: Describe how accounting for a held-to-maturity investment,an available-for-sale investment,and an equity-method investment is affected by a company electing the fair value option.

Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:

Indicate (by number)the way each of the investments listed below usually should be accounted for under U.S.GAAP based on the information provided.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Damon,Inc. ,acquired 25% of Jolie Enterprises for $8,000,000 on October 1,2016.The total fair value of Jolie's identifiable net assets was $27,000,000 on that date,and the total book value of those net assets was $23,000,000.The difference between fair value and book value is attributed to equipment that has a remaining useful life of 4 years.During 2016 Jolie recognized net income of $2,000,000 and paid dividends of $1,200,000 ($300,000 per quarter).Jolie had a fair value of $36,000,000 as of December 31,2016. Required: Assume Damon accounts for the Jolie investment under the equity method.Indicate the total effect of the Jolie investment on Damon's: 1)net income for 2016 2)the balance in Damon's investment account on December 31,2016.

Smith buys and sells securities,which it typically classifies as available for sale.On December 15,2016,Smith purchased $500,000 of Jones shares and elected the fair value option to account for the Jones investment.As of December 31,2016,the Jones shares had a fair value of $525,000.In the 2016 financial statements,Smith will report (ignore taxes) :

Use the following to answer questions Arctic Cat Inc. ,the snowmobile manufacturer,reported the following in its 20X5 annual report to shareholders: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal bonds and money market funds and are classified as follows at March 31: Trading securities consist of $54,608,000 and $41,707,000 invested in various money market funds at March 31,20X5 and 20X4,respectively,while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments.The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000,at March 31,20X5.The unrealized gain on available-for-sale debt securities is reported,net of tax,as a separate component of shareholders' equity. Arctic Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: In its 20X4 annual report,Arctic Cat disclosed,"The contractual maturities of available-for-sale debt securities at March 31,20X4,are $3,573,000 within one year and $3,340,000 from one year through five years." -How much did Arctic Cat actually receive from the sale of available-for-sale securities during 20X5?

On March 1,2016,Navy Corporation used excess cash to purchase U.S.Treasury bonds for $103,000 plus accrued interest.The bonds were purchased at face value.The appropriate interest rate is 6%.Interest on these bonds is payable on January 1 and July 1 of each year.Navy's investment is accounted for as held to maturity.The fair value of the Treasury bonds is $104,000 at year-end. Required: Prepare the appropriate journal entries to record the transactions for the year,including any year-end adjustments.Show calculations,rounded to the nearest dollar.

When the equity method of accounting for investments is used by the investor,the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition:

On April 1,2016,BigBen Company acquired 30% of the shares of LittleTick,Inc.BigBen paid $100,000 for the investment,which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets.BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2016,and the rest to goodwill.LittleTick recognized a total of $20,000 of net income for 2016,and paid total dividends for the year $10,000;these dividends were issued quarterly.BigBen's investment in LittleTick will affect BigBen's 2016 net income by:

If Dizbert Company concluded that an investment originally classified as available for sale would now more appropriately be classified as held to maturity,Dizbert would: