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Exam 12: Investments

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Question 31

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If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

A) allocated to expense on the date of acquisition.
B) allocated to identifiable assets to the extent of their fair values, with any remainder allocated to goodwill.
C) allocated to goodwill, with any remainder allocated to the identifiable assets.
D) set up as a liability to the controlling interest.

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Question 32

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In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

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Question 33

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A decline in the fair value of a trading security is recorded by debiting an unrealized loss account and crediting the Fair Value Adjustment account.

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash. June 1 Received cash dividends of $3 per share on Horton stock. Oct) 1 Sold 1,200 shares of Horton stock for $32,400. The entry to record the receipt of the dividends on June 1 would include a

In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.

Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.

At the end of its first year, the trading securities portfolio consisted of the following common stocks. The unrealized loss to be recognized under the fair value method is

A company may purchase a noncontrolling interest in another firm in a related industry

Short-term investments are listed on the balance sheet immediately below

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2014 would include a credit to

The equity method of accounting for an investment in the common stock of another company should be used by the investor when the investment

The cost of debt investments includes each of the following except

A typical investment to house excess cash until needed is

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company's investment in Lynn will increase by

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash. June 1 Received cash dividends of $2 per share on Horton stock. Oct) 1 Sold 1,200 shares of Horton stock for $32,400. The entry to record the purchase of the Horton stock would include a

Short-term investments are securities that are readily marketable and intended to be converted into cash within the next