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Exam 13: Investments and Fair Value Accounting

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Question 91

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Investment in Bonds is reported on the balance sheet at lower of cost or market.

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Question 92

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Which of the following is not a part of comprehensive income?

A) foreign currency items
B) cash flows from stock investments
C) unrealized gains and losses on available-for-sale securities
D) pension liability adjustments

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Question 93

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Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton using the cost method?

Prepare the journal entries for the following transactions for Batson Co. a) Batson Co. purchased 1,200 shares of the total of 100,000 outstanding shares of Michael Corp. stock for $20.75 per share plus a $70 commission. b) Michael's total earnings for the period are $84,000. c) Michael's paid a total of $40,000 in cash dividends to shareholders of record.

During the first year of operations, Makala Company purchased two available-for-sale investments as follows: $\begin{array} { | l | l | l | } \hline \text { Security } & \text { Shares Purchased } & \text { Cost } \\\hline \text { Oceanna Company } & 700 & \$ 29,000 \\\hline \text { Rockledge, Inc. } & 1,900 & 41,000 \\\hline\end{array}$ Assume that as of December 31, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc. stock had a market value of $20 per share. Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, Makala had a net income of $105,000. No dividends were paid. a) Prepare the current assets section of the balance sheet presentation for the available-for sale securities as of December 31. b) Prepare the stockholders' equity section of the balance sheet as of December 31.

Which of the following stock investments should be accounted for using the cost method?

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 a