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Exam 7: Investments and the Time Value of Money

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Question 51

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Yukon Electrical Company owns all of the stock of Simmons Corporation and 80% of the stock of I-Tek Corporation.In 2017,Yukon earned net income of $450,000,Simmons earned $120,000,and I-Tek earned $180,000.Yukon's consolidated income statement would report consolidated net income of:

A) $450,000
B) $570,000
C) $750,000
D) $714,000

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Question 52

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Non-strategic investments are recorded at market value and are reported on the balance sheet at cost.

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Question 53

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A gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the:

Goodwill is a(n) ________ on the ________.

Zeep Company purchased shares of Zoop Inc on June 30,2016 for $7,500.At the end of August these shares are now worth $6,500.Zeep has an unrealized loss on this investment.

The Gain/Loss on Investment account may appear on which financial statement?

Brighton Beach Limited owns 40% of Alberta Based Inc.Total cash dividends paid by Alberta Based Inc.for the year ending December 31,2017,amount to $47,919.The journal entry prepared by Brighton Beach Limited on December 31,2017,includes a:

On the cash flow statement,the purchase and sale of bonds of other companies to be held for an extended time are reported as:

On January 1,2015 Blue Cat Corporation purchased 1,000 shares (5%)of Mike Mouse Co.for $14,000 as a long term investment.On May 31,2016 Mike Mouse pays a $0.70 dividend.At year end December 31,2014 Mike Mouse shares are trading at $15 per share.Blue Cat then sells their investment in Mike Mouse Co for $13,500 on February 20,2017.Prepare Blue Cat's journal entries for 2015,2016 and 2017.

Retail Energy Corporation paid $1,300,000 on January 1,2017,to purchase 32% of the outstanding shares of Natural Gas Limited.In 2017 Natural Gas Limited reported $450,000 of net income and paid $100,000 in dividends.If this investment is accounted for using the equity method of accounting,what will be the impact on the books of Retail Energy Corporation?

On January 1,2017,bonds with a face value of $94,000 were sold.The bonds mature on January 1,2027.The face interest rate is 8% annually.The bonds pay interest semiannually on July 1 and January 1.The market rate of interest is 10% annually.What is the market price of the bonds? The present value of $1 for 20 periods at 5% is 0.377.The present value of an ordinary annuity of $1 for 20 periods at 5% is 12.462.The present value of $1 for 10 periods at 10% is 0.463.The present value of an ordinary annuity of $1 for 10 periods at 10% is 6.145.(Round your final answer to the nearest dollar.)

Olive Corporation purchases Branch Inc shares on June 21 for $220,000.On October 1 Olive receives a cash dividend of $2,500 from Branch Inc.On December 31^st the value of Olive Corporation's investment in Branch has decreased in value to $210,000. Prepare journal entries needed on June 21,October 1,and December 31,2014.

When preparing a consolidated balance sheet:

If a parent company and its subsidiary have accounts receivable from mutually exclusive external sources in the amounts of $35,000 and $20,000,respectively,the consolidated balance sheet for the parent and its subsidiary will show:

An investment in common shares at fair value through other comprehensive income acquired during 2014 at a cost of $46,000 has a market value on December 31,2014,of $46,721.The adjusting entry requires a debit to long term investments (at fair value through other comprehensive income)for $721.

Power Generation Corp.owns 38% of Electric Limited.Net income for Electric Limited for the year ending December 31,2017,is $450,000.The journal entry prepared by Power Generation Corp.on December 31,2017,includes a:

Corporations invest in a short-term investment:

Short term investment purchases are initially recorded at their cost.

Unrealized gains or losses on short-term investments are reported using:

Investments in long-term bonds are shown on the balance sheet at their current market value.