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Exam 16: Accounting for Debt and Share Investments

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Question 41

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Long-term investments in debt securities are reported at ______________ on the balance sheet.

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Question 42

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Strategic investments that occur when the investor can significantly influence the strategic operating,investing,and/or financing policies of the investee are called:

A) Joint arrangement.
B) Investments in associates.
C) Business combinations.
D) Non-strategic investment in bonds.
E) Proportionate investment.

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Question 43

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The controlling investor is called the:

When using the equity method,the receipt of cash dividends is recorded as revenue because the investor has earned a distribution of earnings by the investee.

The sale of a short-term equity investment includes a debit to:

Explain how investments in associates are accounted for.

Explain how long-term debt securities are initially accounted for.

A(n)_______________ represents an amount owed and arises when one company lends money to another,such as a bond.

Joint venture arrangements are ones in which two or more parties jointly control the resulting economic activity.

The sale of a short-term equity investment requires a debit to cash and a credit to short-term investments,with any resulting differences recognized as gains or losses.

Micron purchased 40,000 Martok Corp common shares.This represents 40% of the outstanding shares.The purchase price was $232,000.The entry to record the transaction includes a:

World Co.purchased 500 Romeo Corporation common shares at $50 per share plus $100 commission.World Co.intends to hold these shares for six to twelve months for the purpose of realizing gains in share price fluctuation.The entry to record this purchase is:

Define and explain how to account for a business combination.

When a corporation purchases the shares or bonds of other companies,it has made an intercorporate investment.

Under IFRS,non-strategic debt investments are initially recorded using:

Micron owns 30% of JVT Corp's common shares and has significant influence over JVT's operations.Micron receives $6,500 in dividends from JVT.The entry to record receipt of the dividends includes a debit to Cash for $6,500 and a credit to Investment in JVT Shares for $6,500.

After recording the initial purchase of non-strategic investments,an entity must continue to measure the investment at fair value; subsequent profits or losses arising are recognized in net income.

Micron owns 35% of Martok Corp common shares,and is considered to have significant influence.Martok paid a total of $47,000 in common dividends.Micron would record the dividend transaction with a:

Music City owns Airport Corp bonds as a short-term equity investment with a carrying value of $65,000.The current market value is $68,500.Music City should record a:

At December 31,Evenflo held Eastjet Corp bonds with a cost of $150,000 and a fair value of $147,380.As well,they held 1,200 Anvil common shares with a cost of $40,000 and a fair value of $42,225.Both of these investments were classified as short-term investments.Prepare the journal entry to record the adjustment required to reflect the fair value of the investments at December 31.