Test bank accounting 25th editon warren chapter 15 investments and fair valuae accounting

Chapter 15--Investments and Fair Value Accounting
Student: ___________________________________________________________________________
1. Although marketable securities may be retained for several years, they continue to be classified as temporary,
provided they are readily marketable and can be sold for cash at any time.
True False

2. As with other assets, the cost of a bond investment includes all costs related to the purchase.
True False

3. If the bonds are purchased between interest dates, the purchase price includes accrued interest since the last
interest payment.
True False

4. When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any
accrued interest is recorded.
True False

5. The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.
True False

6. Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of
the investment.
True False

7. To record a bond investment between interest payment periods, Investment in Bonds would be debited and
Cash and Interest Revenue would be credited.
True False


8. When long-term investments in bonds are sold before their maturity date, the seller deducts any accrued
interest since the last interest payment date from the selling price.

True False

9. If the proceeds from the sale of bond investments exceeds the carrying amount of the bonds, a gain is
realized.
True False

10. Any gains or losses on the sale of bonds normally would be reported in the Other Income (Loss) section of
the income statement.
True False

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

12. Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts
for the investment using the equity method.
True False

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

14. Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market
value each accounting period.
True False

15. The equity method causes the investment account to mirror the proportional changes in book value of the
investee.
True False

16. Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for
investments.
True False

17. The corporation owning all or a majority of the voting stock of another corporation is known as the parent
company.
True False

18. When a corporation owns less than 20% of the stock of another company, dividends received are not treated
as income.
True False

19. The financial statements resulting from combining parent and subsidiary statements are called consolidated
statements.
True False

20. It is not possible for one company to influence the operating policies of another company unless it owns
more than 50% interest in that company.
True False

21. The equity method is usually more appropriate for accounting for investments where the purchaser does not
have significant influence over the investee.
True False

22. When bonds held as long-term investments are purchased at a price other than the face value, the premium
or discount should be amortized over the remaining life of the bonds.
True False

23. The amortization of discounts or premiums are recorded as part of interest income on the income statement.
True False

24. Held-to-maturity securities are reported on the balance sheet at fair market value.
True False


25. Held-to-maturity securities maturing beyond a year are reported as noncurrent assets.
True False

26. Trading securities should be reported on the financial statements at fair market value.
True False

27. Investments in bonds that management intends to hold to maturity are called trading securities.
True False

28. Investment in Bonds are reported on the balance sheet at lower of cost or market.
True False

29. Investment in Bonds is listed on the balance sheet after Bonds Payable.
True False

30. Temporary investments are recorded at their cost which would include broker’s commissions.
True False

31. Available-for-sale securities are securities that management expects to sell in the future, but are not actively
traded for profit.
True False

32. Trading securities are reported on the balance sheet at cost.
True False

33. Any difference between the fair market values of the securities and their cost is a realized gain or loss.
True False

34. Unrealized gains and losses on trading securities are not included in the calculation of net income.
True False


35. Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity
section of the balance sheet.
True False

36. In order to maintain the original value of a trading security, the fair value adjustments are debited or
credited to the account Valuation Allowance for Trading Investments.
True False

37. Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and
liabilities.
True False

38. Fair value accounting is used more under Generally Accepted Accounting Principles (GAAP) than it is
under International Financial Reporting Standards (IRFS).
True False

39. Growth firms generally pay regular dividends to stockholders.
True False

40. Comprehensive income is all changes in stockholders' equity during the period except those resulting from
dividends and stockholders' investments.
True False

41. Comprehensive income must be reported on the income statement.
True False

42. 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.
True False

43. Comprehensive income does not affect net income or retained earnings.
True False


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

45. Foreign currency translation adjustment is an example of an item that would be included in Other
Comprehensive Income.
True False

46. Temporary investments
A. are reported as current assets
B. include cash equivalents
C. do not include equity securities
D. all of the above

47. Which of the following is not a reason to invest excess cash in temporary investments?
A. earn interest revenue
B. influence the operations of another company
C. receive dividends
D. realize gains from the increase in market value of the securities

48. Investment in certificates of deposit and other securities that do not change in value are reported in the
balance sheet as:
A. equity investments
B. available-for-sale securities
C. cash and cash equivalents
D. held to maturity securities

49. Long-term investments are held for all of the listed reasons below except
A. to earn the interest or dividend income
B. for its long-term gain potential
C. to influence over another business entity
D. to meet current cash needs


50. Temporary investments such as in trading securities are
A. recorded at cost but reported at fair market value
B. recorded at cost and reported at cost
C. recorded at cost but reported at lower of cost or fair market value
D. recorded at fair market value and reported at fair market value

51. 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?
A. $50,000
B. $50,500
C. $49,500
D. $53,000

52. 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?
A. $400
B. $406
C. $2,000
D. $2,400

53. Interest revenue on bonds is reported
A. as an addition to the Investment in Bonds account
B. as part of Comprehensive Income but not as part of Net Income.
C. as part of other income
D. as part of operating income

54. Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The
bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the purchase would be:
A. Debit: Investment in Bonds $101,500; Credit: Cash $101,500
B. Debit: Investment in Bonds $100,000; Credit: Interest Revenue $1,500 and Cash $98,500
C. Debit: Investment in Bonds $100,000 and Interest Receivable $1,500; Credit: Cash $101,500
D. Investment in Bonds $100,000; Credit: Cash $100,000


55. Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The
bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the receipt of interest on
the next interest payment date would be:
A. Debit: Cash $4,000; Credit: Interest Revenue $4,000
B. Debit: Cash $4,000; Credit: Interest Receivable $4,000
C. Debit: Cash $4,000; Credit: Interest Receivable $1,500 and Interest Revenue $2,500
D. Debit: Cash $2,500; Credit: Interest Revenue $2,500

56. Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at

$104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be:
A. Debit: Cash $105,000; Credit: Investment in Bonds $104,500 and Interest Revenue $500
B. Debit: Cash $105,000; Credit: Investment in Bonds $100,000 and Gain on Sale of Investments $5,000
C. Debit: Cash $104,500 and Interest Receivable $500; Credit: Investment in Bonds $100,000, Gain on Sale of
Investments $4,500 and Interest Revenue $500
D. Debit: Cash $105,000; Credit: Investment in Bonds $100,000; Gain on Sale of Investments $4,500 and
Interest Revenue $500

57. Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is
purchased for $45 a share plus brokerage fees of $280. The entry for the purchase is:
A. Cash
Stock Investments - Saxton Company

4,500

B. Stock Investments - Saxton Company
Cash

4,780
4,780

C. Stock Investments - Saxton Company
Brokerage Fee Expense
Cash

4,500
280
4,780

D. Stock Investments - Saxton Company

Cash

4,500
4,500

4,500

58. Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy
Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The
entry to record the purchase of the bonds would include:
A. Interest Receivable debit $2,000
B. Investment in Bonds debit $202,000.
C. Cash debit $200,000
D. Interest Revenue credit $2,000.


59. On April 1, 2011, Albert Company purchased $50,000 of Tetter Company’s 12% bonds at 100 plus accrued
interest of $2,000. On June 30, 2011, Albert received its first semiannual interest. On February 1, 2012, Albert
sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Albert will record on April 1, 2011
for the purchase of the bonds will include:
A. a credit to Interest Payable for $2,000.
B. a debit to Investments - Tetter Company for $52,000.
C. a debit for Cash of $50,000.
D. a debit to Investments - Tetter Company for $50,000.

60. On May 1, 2014, Stanton Company purchased $60,000 of Harris Company’s 12% bonds at 100 plus accrued
interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015,
Stanton sold $50,000 of the bonds at 103 plus accrued interest.
The journal entry Stanton will record on June 30, 2014, will include:
A. a credit to Interest Revenue for $2,400.

B. a debit to Cash for $3,600.
C. a credit to Cash for $2,400.
D. a credit to Interest Receivable for $1,200.

61. On May 1, 2014, Stanton Company purchased $60,000 of Harris Company’s 12% bonds at 100 plus accrued
interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015,
Stanton sold $50,000 of the bonds at 103 plus accrued interest.
The journal entry Stanton will record on February 1, 2015, will include:
A. a credit to Interest Revenue for $1,500.
B. a credit to Gain on Sale of Investments for $1,500.
C. a credit to Cash for $52,500.
D. a credit to Interest Receivable for $600.

62. On May 1, 2014, Stanton Company purchased $60,000 of Harris Company’s 12% bonds at 100 plus accrued
interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015,
Stanton sold $50,000 of the bonds at 103 plus accrued interest.
What are the total proceeds from the February 1, 2015 sale?
A. $52,400
B. $51,500
C. $50,000
D. $52,000


63. Which of the following stock investments should be accounted for using the cost method?
A. investments of less than 20%
B. investments between 20 % and 50%
C. investments of less than 20% and investments between 20% and 50%
D. all stock investments should be accounted for using the cost method

64. Which of the following statements below is not a reason a company may purchase another company's

stock?
A. earning a return on excess cash
B. sustain the other company's stock price
C. gaining control of another company's operations
D. developing or maintaining business relationships

65. The cost method of accounting for stock
A. recognizes dividends as income
B. is only appropriate as part of a consolidation
C. requires the investment be increased by the reported net income of the investee
D. requires the investment be decreased by the reported net income of the investee

66. An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were
sold for $49.50 per share. What is the amount of gain or loss on the sale?
A. $12,750 gain
B. $600 gain
C. $600 loss
D. $9,250 loss

67. Held to maturity securities
A. are reported at fair market value
B. include stocks as well as bonds
C. may be reported as current or noncurrent assets
D. all of the above

68. The equity method of accounting for investments
A. requires a year-end adjustment to revalue the stock to lower of cost or market
B. requires the investment to be reported at its original cost
C. requires the investment be increased by the reported net income of the investee
D. requires the investment be increased by the dividends paid by the investee

69. Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and
exercises a significant influence over its operating and financial policies. The investment should be accounted
for by the
A. equity method
B. market method
C. cost or market method
D. cost method

70. Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio
Corporation is accounted for as a debit to Cash and a credit to
A. Investment in Vallerio
B. Retained Earnings
C. Dividend Revenue
D. Dividend Receivables

71. The method of accounting for investments in equity securities in which the investor records its share of
periodic net income of the investee is the
A. cost method
B. market method
C. income method
D. equity method

72. When shares of stock held as an investment are sold, the difference between the proceeds and the carrying
amount of the investment is recorded as a(n)
A. prior period adjustment
B. operating income and losses
C. paid-in capital addition
D. gain or loss

73. Which one of the following items below would not affect the investor's income for the period?
A. interest received on a temporary investment in bonds
B. dividends received on a long-term investment in stock where the investor owns 10% of the investee's stock
C. dividends received on a long-term investment in stock where the investor owns 30% of the investee's stock
D. interest received on a long-term investment in bonds


74. Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment
using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance
in the investment account would be equal to the cost of the
A. investment only
B. investment plus Wendell’s share of Porter’s net income earned since the investment was purchased
C. investment plus the total amount of dividends Wendell has received from Porter since the investment was
purchased
D. investment plus Wendell’s share of Porter’s net income earned since the investment was purchased minus
the total amount of dividends Wendell has received from Porter since the investment was purchased

75. Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a
long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash
dividends. What journal entry would Blanton Corporation use to record the dividends it receives?
A. debit Investment in Worton Corporation; credit Cash
B. debit Cash; credit Dividend Revenue
C. debit Investment in Worton Corporation; credit Income of Worton Corporation
D. debit Cash; credit Investment in Worton Corporation

76. Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a
long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash
dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton
Corporation?

A. debit Investment in Worton Corporation; credit Cash
B. debit Cash; credit Dividend Revenue
C. debit Investment in Worton Corporation; credit Income of Worton Corporation
D. debit Cash; credit Investment in Worton Corporation

77. Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in
recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would
include a
A. Credit to cash for $9,000
B. Debit to the investment account for $9,000
C. Credit to the investment account for $9,000
D. Credit to a loss account for $9,000

78. Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as
the
A. parent
B. minority interest
C. affiliate
D. subsidiary


79. Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred
to as the
A. parent
B. minority interest
C. affiliate
D. subsidiary

80. Financial statements in which financial data for two or more companies are combined as a single entity are
called

A. conventional statements
B. consolidated statements
C. audited statements
D. constitutional statements

81. In general, consolidated financial statements should be prepared
A. when a corporation owns more than 20% and less than 40% of the common stock of another company
B. when a corporation owns more than 50% of the common stock of another company
C. only when a corporation owns 100% of the common stock of another company
D. whenever the market value of the stock investment is significantly lower than its cost

82. An investor purchased 500 shares of common stock, $25 par, for $19,250. Subsequently, 100 shares were
sold for $35 per share. What is the amount of gain or loss on the sale?
A. $3,500 gain
B. $350 gain
C. $350 loss
D. $500 gain

83. For accounting purposes, the method used to account for investments in common stock is determined by
A. the amount paid for the stock by the investor.
B. whether the acquisition of the stock by the investor was "friendly" or "hostile."
C. the extent of an investor's influence over the operating and financial affairs of the investee.
D. whether the stock has paid dividends in past years.

84. When the cost method is used to account for an investment, the carrying value of the investment is affected
by
A. the dividend distributions of the investee.
B. the periodic net income of the investee.
C. the earnings and dividend distributions of the investee.
D. neither the earnings nor the dividends of the investee.

85. The company whose more than 50% stock is owned by the another company is called the
A. controlling company.
B. investee company.
C. subsidiary company.
D. sibling company.

86. If one company owns more than 50% of the common stock of another company
A. a partnership exists.
B. a parent–subsidiary relationship exists.
C. the company whose stock is owned must be liquidated
D. the cost method should be used to account for the investment.

87. Yankton Company began the year without an investment portfolio. During the year they purchased
investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the
securities was $11,000. The Yankton Company's financial statements for the current year should show
A. a loss of $2,000 on the income statement and net trading securities of $13,000 on the balance sheet
B. no loss on the income statement and net trading securities of $13,000 on the balance sheet
C. no loss on the income statement, net trading securities of $11,000 and an unrealized loss of $2,000 as a
stockholders’ equity adjustment on the balance sheet
D. a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet

88. Yankton Company began the year without an investment portfolio. During the year they purchased
investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market
value of the securities was $11,000. The Yankton Company's financial statements for the current year should
show
A. a loss of $2,000 on the income statement and available-for-sale securities of $13,000 on the balance sheet
B. no loss on the income statement and available-for-sale securities of $13,000 on the balance sheet
C. no loss on the income statement, available-for-sale securities of $11,000 and an unrealized loss of $2,000 as

a stockholders’ equity adjustment on the balance sheet
D. a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet

89. The account Unrealized Gain (Loss) on Available-For-Sale Securities should be included in the
A. Income statement as Other Revenue (Expenses)
B. Balance sheet as an adjustment to the asset account
C. Balance sheet as an adjustment to Stockholders' Equity
D. Statement of Retained Earnings


90. The account Unrealized Gain (Loss) on Trading Securities should be included in the
A. Income statement as Other Revenue (Expenses)
B. Balance sheet as an adjustment to the asset account
C. Balance sheet as an adjustment to Stockholders' Equity
D. Statement of Retained Earnings

91. The account Valuation Allowance for Trading Securities is found on the:
A. Income statement as Other Revenue (Expenses)
B. Balance sheet as an adjustment to the asset account
C. Balance sheet as an adjustment to Stockholders' Equity
D. Statement of Retained Earnings

92. Held-to-Maturity securities
A. are reported at their fair market value on the balance sheet date
B. include both stocks and bonds
C. are primarily purchased to earn interest revenue
D. all of the above

93. On January 1, 2014, Blanton Company’s Valuation Allowance for Trading Investments account has a debit
balance of $23,200. On December 31, 2014, the cost of the trading securities portfolio was $80,000. The fair

value was $98,000. Which of the following would Blanton report on the income statement for 2014?
A. an Unrealized Loss on Trading Investments of $5,200.
B. an Unrealized Gain on Trading Investments of $5,200.
C. an Unrealized Gain on Trading Investments of $18,000.
D. an Unrealized Loss on Trading Investments of $18,000.

94. All of the following are disadvantages of fair value use except:
A. fair values may not be readily obtainable.
B. fair values may cause more fluctuations as change occurs from period to period.
C. comparability between companies may be impacted by different fair value measurement.
D. fair values can only be used on balance sheet accounts.

95. All of the following are factors contributing to the trend for regulators to adopt accounting principles using
fair value concepts except:
A. a greater percentage of total assets existing as receivables and securities.
B. pressure on regulators to adopt an international set of accounting principles and standards.
C. hybrid measurement methods within GAAP that conflict with each other.
D. the ease of applying market values to assets and liabilities.


96. 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:
A. 5%
B. 10%
C. 25%
D. 20%

97. A company that has 25,000 shares of $5.00 par value common stock issued and outstanding paid a
dividend of $0.40 per share. The market value of the stock is $16 per share. The company’s dividend yield is:
A. 2.5%

B. 400%
C. 16%
D. 40%

98. Which of the following is not a part of comprehensive income?
A. foreign currency items
B. cash flows from stock investments
C. unrealized gains and losses
D. pension liability adjustments

99. Which of the following would be considered an “Other Comprehensive Income” item?
A. net income.
B. extraordinary loss related to flood.
C. gain on disposal of discontinued operations.
D. unrealized loss on available-for-sale securities.

100. Companies may report comprehensive income on each of the statements below except
A. income statement
B. separate statement of comprehensive income
C. statement of cash flows
D. retained earnings statement

101. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240
brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas
stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include:
A. a debit to Cash for $111,840
B. a credit to Investments for $112,000
C. a credit to Loss on Sale for $23,680
D. a debit to Cash for $112,000

102. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240
brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas
stock were sold for $28 per share less a $160 brokerage fee. The journal entry to record the purchase would
include:
A. a debit to Investments for $132,000
B. a credit to Cash for $132,000
C. a debit to Investments for $132,240
D. a credit to Investments for $240

103. Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of
bonds at 97. The journal entry for the purchase would include:
A. a credit to Interest Receivable for $4,500
B. a credit to Interest Revenue for $4,500
C. a debit to Interest Receivable for $4,500
D. a debit to Interest Revenue for $4,500

104. Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of
bonds at 97 plus accrued interest. The journal entry for the sale would include:
A. a debit to Cash for $242,500
B. a credit to Loss on Sale for $7,500
C. a credit to Gain on Sale for $7,500
D. a debit to Cash for $244,300


105. Match each of the following investment terms with the appropriate definition below.
1. Preferred and common stock that represent
ownership in a company and do not have a fixed
maturity date.
2. Securities not held for trading or to maturity or

other strategic reasons.
3. Notes and bonds that pay interest and have a
fixed maturity.
4. When using this, dividends are treated as a
reduction of the investment.
5. Debt investments that a company intends to
keep until their maturity date.
6. Debt and equity securities purchased and sold
to earn short-term profits from changes in the
market price.
7. The company investing in another company’s
stock.
8. The method of reporting an investment that
represents less than 20% of the voting stock of
another company.
9. The company whose stock is purchased by
another entity.
10. What occurs when a company
purchases 50% or more of another company’s
stock.

Trading Securities ____
Equity Securities ____
Cost Method ____
Equity Method ____
Debt Securities ____
Held-to-maturity
Securities ____
Available-for-sale
Securities ____

Investor ____
Business
Combination ____

Investee ____

106. Match each of the following investment terms with the appropriate definition below.
1. Combined reporting of a corporation and
other corporations it controls.
2. The method for accounting for investments of
20 - 50% in another company’s stock.
3. Measurement of the rate of return to
stockholders based on cash dividends.
4. Recognition of changes in the fair value of
short-term investments.
5. A corporation controlled by another
corporation that owns all or the majority of its
voting stock.
6. The market price that would be received if an
investment were sold.
7. A balance sheet account where the fair value
adjustment for investments is reported.
8. Appropriate method for accounting for small
stock investments.
9. The value assigned to held-to-maturity
securities.
10. A corporation owning all or the majority of
the voting stock of another corporation.

Parent Company ____
Valuation Allowance
for Investments ____
Subsidiary Company ____
Equity Method ____

Fair Value ____
Dividend Yield ____
Consolidated Financial
Statements ____
Unrealized Gain or Loss
on Investments. ____
Amortized Cost ____
Cost Method ____


107. Define (1) debt securities and (2) equity securities. Include their similarities and differences in your
discussion.

108. On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, 6% Manus Corporation bonds dated March 1,
2015 at 100 plus accrued interest. What entry would Chase record when purchasing the bonds?

109. On May 1, 2015, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 6% bonds dated March 1,
2015 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on
September 1?

110. On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1,
2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on
March 1, 2013?

111. On October 1, 2012, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8
1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, 2012,
the date of the last semi-annual interest payments. Journalize the purchase.

112. On September 1, 2012, Parsons Company purchased $84,000, 10 year, 7% government bonds at 100 plus
accrued interest. The semi-annual interest payment dates are June 30 and December 31. Interest calculations
are done by the month. Required:
(1)
(2)
(3)

Journalize the entry to record the bond purchase.
Journalize the receipt of interest on December 31, 2012.
Journalize the February 1, 2013 sale of the bonds for $82,000 plus accrued interest.

113. Journalize the entries to record the following selected bond investment transactions for Southwest Bank:
(1)
(2)
(3)

Purchased $400,000 of Daytona Beach 5% bonds at 100 plus accrued interest of $4,500.
Received the first semiannual interest.
Sold $250,000 of the bonds at 97, plus accrued interest of $1,800.


114. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240
brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas
stock were sold for $28 per share less a $160 brokerage fee.
Required:

Prepare the journal entries for the original purchase, dividend and sale.

115. On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for
$205,000. For the year ending, December 31, McGuire earned income of $48,000 and paid dividends of
$14,000.
Required:
Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income and dividends
received from McGuire.

116. Journalize the entries to record the following selected equity investment transactions completed by Perry
Company during 2012. Perry accounts for this investment using the cost method.:
February 2
April 16
June 17
August 19
November 14

Purchased for cash 900 shares of Dexter Co.stock for $54 per share plus a $450 brokerage commission. This
represents a less than 10% ownership interest in the company.
Received dividends of $0.25 per share on Dexter Co. stock.
Sold 200 shares of Dexter Co. stock for $70 per share less a $500 brokerage commission.
Purchased 600 shares of Dexter Co. stock for $65 per share plus a $300 brokerage commission.
Received dividends of $0.30 per share on Dexter Co. stock.


117. Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2015. Marco
reported net income of $95,000 and declared dividends of $35,000 during 2015. How much would Ramiro
adjust their investment in Marco Company under the equity method?

118. Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes

reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito
adjust their investment in Reyes Company under the equity method?

119. Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1,
2012. Roberts reported net income of $155,000 and declared dividends of $40,000 during 2012. How would
these events be reported by Sutton using the cost method?

120. Journalize the entries to record the following selected equity investment transactions completed by Flurry
Company during 2012. Flurry’s purchase represents less than 20% of the total outstanding Braxter stock.

February 2
April 16
June 17

Purchased for cash 500 shares of Braxter Co.stock for $34 per share plus a $250 brokerage commission.
Received dividends of $0.35 per share on Braxter Co. stock.
Sold 100 shares of Braxter Co. stock for $40 per share less a $100 brokerage commission.


121. On March 1, 2011, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for
$325,000. On December 31, 2011, Glory reports net income of $162,000. On January 15, 2012, Glory pays
total dividends to stockholders of $33,000.
Required: Journalize the three transactions described above.

Date

Accounts

DR

CR

122. On January 1, 2015, Valuation Allowance for Trading Investment has a zero balance . On December 31,
2015, the cost of trading securities portfolio was $64,200, and the fair value was $67,000.
Required:
Prepare the December 31, 2015, adjusting journal entry to record the unrealized gain or loss on trading
investments.


123. Skyline, Inc. purchased a portfolio of trading securities during 2012. The cost and fair value of this
portfolio on December 31, 2012, was as follows:
Name
Alcon, Inc.
Easton Company
Panther Company
Total

Number of Shares
1,200
700
300

Total Cost
$16,000
23,000
9,000
$48,000

Total Fair Value
$15,000

21,500
9,200
$45,700

Required:
Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31, 2012.
Where will the information from the journal entry be reported on the financial statements?

124. Skyline, Inc. purchased a portfolio of available-for-sale securities during 2012. The cost and fair value of
this portfolio on December 31, 2012, was as follows:
Name
Blackstone, Inc.
Flagler Company
Patternson Corporation
Total

Number of Shares
400
200
600

Total Cost
$4,000
3,000
7,500
$14,500

Total Fair Value
$5,200
2,700

9,800
$17,700

Required:
Provide the journal entry to record the adjustment of the available-for-sale security portfolio to fair value on December 31, 2012.
Where will the information from the journal entry be reported on the financial statements?


125. The income statement for Hudson Company reported net income of $345,000 for the year ended December
31, 2012 before considering the following:
During the year the company purchased trading securities. At year end, the fair value of the investment portfolio
was $23,000 less than cost.
The balance of retained earnings was $823,000 on December 31, 2011. Hudson Company paid $43,000 in
cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

126. The income statement for Dodson Corporation reported net income of $22,400 for the year ended
December 31, 2012 before considering the following:
During the year the company purchased available-for-sale securities. At year end, the fair value of the
investment portfolio was $2,100 more than cost.
The balance of retained earnings was $83,000 on December 31, 2011. Dobson Corporation paid $9,000 in cash
dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.

127. During 2012, its first year of operations, Makala Company purchased two available-for-sale investments as
follows:
Security
Oceanna Company
Rockledge, Inc.

Shares Purchased
700

1,900

Cost
$29,000
41,000

Assume that as of December 31, 2012, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc. stock had a market
value of $20 per share.
Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, 2012, Makala had a net
income of $105,000. No dividends were paid.
Required:
(1)
Prepare the Current Assets section of the balance sheet presentation for the available-for sale securities as of
December 31, 2012.
(2)
Prepare the Stockholders’ Equity section of the balance sheet as of December 31, 2012.