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Exam 12: Investments

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Question 91

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Prepare appropriate entry(s) at December 31, 2013, and indicate how the scenario will affect net income, OCI, and comprehensive income.

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Blue must record an unrealized loss of $...

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Question 92

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Which of the following is not true about recognizing unrealized gains and losses on equity investments?

A) If the investor does not have significant influence over the investee, the equity investment is always accounted for as FV-NI.
B) The investor can use the FV-OCI approach if the equity is held for purposes of maximizing return on investment or managing risk.
C) The investor will recognize unrealized gains and losses in earnings in the period in which fair value of the investment changes.
D) If the investor has significant influence but not control over the investee, the equity method is useD.Answer B applies to the FV-OCI method for debt investments, not equity investments.

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Question 93

True/False

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If an investment is accounted for under the equity method, the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment.

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?

Indicate (by number) the level of stock ownership that most frequently relates to each concept listed below.

The investment category for which the investor's "positive intent and ability to hold" is important is:

Jeremiah Corporation purchased securities during 2013 and classified them as securities available for sale: All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2013, income statement relative to the portfolio?

Both trading securities and securities available for sale are reported at their fair values.

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Gerken Company concluded at the beginning of 2013 that the company's ownership interest in DillCo had increased to the point that it became appropriate to begin using the equity method to account for the investment. The balance in the investment account is $50,000 at the time of the change, and accountants working with company records determined that the balance would have been $75,000 if the account had been adjusted for investee net income and dividends as prescribed by the equity method. After implementing the change to the equity method, if financial statements were prepared:

Nichols Enterprises has an investment in 25,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shares are publicly traded on the New York Stock Exchange, and The Wall Street Journal quotes a price for those shares of $10 a share, but Nichols believes the market has not appreciated the full value of the Elliott shares and that a more accurate price is $12 a share. Nichols should carry the Elliott investment on its balance sheet at:

Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31, 2012 and 2013, respectively. During 2013 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2013, their percentage ownership must have been:

On January 2, 2013, MBH Inc. acquired 30% of the voting common stock of Construction Corporation as a long-term investment. Data from Construction Corporation's financial statements for the year ended December 31, 2013, include the following: Required: Prepare any necessary journal entries for MBH at December 31, 2013, under the equity method of accounting for investments.

Which of the following is not true about derivatives?

On January 1, 2013, Everglade Company purchased the following securities and properly accounted for them as securities available for sale: All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its 2013 statement of other comprehensive income?

Investments in securities to be held for an unspecified period of time are reported at:

On January 1, 2013, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2013. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2013?

Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?

Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet?

Krogstad Corporation bought 1,000 shares of Cole Inc. for $90 per share plus a brokerage fee of $1,800. Three months later, the shares were sold for $110 per share. The brokerage fee on the sale was $2,200. Required: (1.) Prepare the appropriate journal entry to record the purchase of the stock. (2.) Prepare the appropriate journal entry to record the sale of the stock.