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Exam 14: Investments

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Question 31

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Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share.The investment is properly classified as an available-for-sale security.By the end of the year,the stock price has increased to $32 per share.How would the change in stock price affect Sports Spectacular's net income?

A) Increase net income by $32,000.
B) Increase net income by $30,000.
C) Increase net income by $2,000.
D) No effect.

E) A) and D)
F) All of the above

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Question 32

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Companies with large expansion plans,called growth companies,prefer to reinvest earnings in the growth of the company rather than distribute earnings back to investors in the form of cash dividends.

A) True
B) False

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Question 33

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Bond investments are long-term assets that earn interest revenue,while bonds payable are long-term liabilities that incur interest expense.

Sandy Sensations purchases twenty,$1,000,7%,10-year bonds issued by Pizza Pier for $20,000 on January 1,2012.The market interest rate for bonds of similar risk and maturity is 7%.Interest is received semiannually on June 30 and December 31. 1.Record the investment in bonds. 2.Record receipt of the first interest payment on June 30,2012.

Unrealized gains and losses from changes in the fair value of trading securities are reported as part of current net income.

Sandy Sensations purchases twenty,$1,000,7%,10-year bonds issued by Pizza Pier for $18,641 on January 1,2012.The market interest rate for bonds of similar risk and maturity is 8%.Interest is received semiannually on June 30 and December 31. 1.Record the investment in bonds. 2.Record receipt of the first interest payment on June 30,2012.

Consolidated financial statements are prepared when one company has:

Seasonal refers to the revenue activities of a company varying based on the time (or season)of the year.

Consolidated financial statements combine the separate financial statements of the purchasing company and the acquired company into a single set of financial statements.

General Investment Co.(GIC)purchased bonds on January 1,2012.GIC's accountant has projected the following amortization schedule from purchase until maturity: $\begin{array}{rrrrr}& \text { Cash } & \text { Interest } & \text { Increase in } & \text { Carrying } \\\text { Date } & \text { Paid } & \text { Expense } & \text { Carrying Value } & \text { Value } \\1 / 1 / 12 & & & & \$ 194,758\\6 / 30 / 12 & \$ 7,000 & \$ 7,790 & \$ 790 & 195,548 \\12 / 31 / 12 & 7,000 & 7,822 & 822 & 196,370 \\6 / 30 / 13 & 7,000 & 7,855 & 855 & 197,225 \\12 / 31 / 13 & 7,000 & 7,889 & 889 & 198,114 \\6 / 30 / 14 & 7,000 & 7,925 & 925 & 199,039 \\12 / 31 / 14 & 7,000 & 7,961 & 961 & \$ 200,000\end{array}$ The investment in bonds has a maturity in: A)Two years. B)Three years. C)Six years. D)Cannot be determined from the given information.

Sports Spectacular purchased 100,000 shares of stock in The Athletic Warehouse for $30 per share.The investment is properly recorded using the equity method.By the end of the year,the stock price has increased to $32 per share.How would the change in stock price affect Sports Spectacular's net income under the equity method?

Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share.The investment is properly classified as a trading security.By the end of the year,the stock price has increased to $32 per share.How would the change in stock price affect Sports Spectacular's net income?