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Exam 15: Investments and Fair Value Accounting

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Question 71

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An equity investment in less than 20% of another company's stock is accounted for using the cost method.

A) True
B) False

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Question 72

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The cumulative effects of other comprehensive income items must be reported separately from retained earnings and paid-in capital, on the balance sheet, as accumulated other comprehensive income.

A) True
B) False

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Question 73

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

Match each of the following investment terms with the appropriate definition below.

Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison's dividend yield is:

On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?

All of the following are factors contributing to the trend for regulators to adopt accounting principles using fair value concepts except:

Which of the following would be considered an "Other Comprehensive Income" item?

Newville Corporation reported net income of $50,000 in 2015. They have 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 common stock outstanding. During 2012 Newville paid the preferred stockholder's a $6 per share dividend and also paid $30,000 to common shareholders. The market value of Newville's stock is: Preferred - $105 and Common - $10. (1) Calculate Newville's dividend yield. (2) Why does the dividend yield vary widely across firms?

Mangrill, Inc. reported net income for the year ending December 31, 2012 of $483,500. Dividends paid during the year totaled $42,900. The company holds available-for-sale securities with an original cost of $162,000 and a fair value of $171,000 at the end of the year. They also hold trading securities with an original cost of $150,000 and a fair value of $147,000. Retained Earnings on January 1, 2012 was $736,400 and Accumulated Other Comprehensive Income on January 1, 2012 was $16,200. Required: Calculate the following balances to be reported in the financial statements dated December 31, 2012. (1) Valuation Allowance for Available-for-Sale securities (2) Comprehensive Income (3) Retained Earnings (4) Accumulated Other Comprehensive Income

The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

The cumulative effects of other comprehensive income items is included in retained earnings, on the balance sheet.