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Exam 12: Investments

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Question 41

Multiple Choice

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If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary",

A) the investment is not written down to fair value.
B) the investment is written down to fair value, and the impairment loss is recognized in net income.
C) the investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income.
D) the investment is treated the same way it would be treated if the decline in fair value was viewed as temporary.

E) A) and B)
F) None of the above

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Question 42

Multiple Choice

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The total amount of additional depreciation to be recognized over the remaining life of the assets is:

A) $4.5 million.
B) $15 million.
C) $27 million.
D) None of these is correct.(in millions)

E) C) and D)
F) A) and D)

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Question 43

Multiple Choice

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Which of the following is not an example of a derivative?

When the equity method of accounting for investments is used by the investor, the investment account is increased when:

On January 1, 2009, Wildcat Company purchased $93,000 of 10% bonds at face value. The bonds are to be held to maturity. The bonds pay interest semiannually on January 1, and July 1. Required: (1.) Prepare the appropriate journal entry to record the acquisition of the bonds. (2.) Record the first two interest payments (ignore year-end accruals).

The amount of purchased goodwill is:

What would be the balance in Beresford's accumulated other comprehensive income with respect to their investments in its 12/31/09 balance sheet (ignore taxes) ?

Both trading securities and securities available for sale are reported at their fair values.

Assume that, on 1/1/08, Sosa Enterprises paid $3,000,000 for its investment in 36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an 8 year remaining useful life and straight-line depreciation with no residual value for its depreciable assets. At 1/1/08, the book value of Orioles' identifiable net assets was $7,000,000, and the fair value of Orioles was $10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,800,000 of goodwill and the remainder to depreciable assets. The following information pertains to Orioles during 2008: What amount would Sosa Enterprises report in its year-end 2008 balance sheet for its investment in Orioles Co.?

Bentz Corporation bought and sold several securities during 2009. Listed below is a summary of the transactions: Required: Prepare the journal entries for the above transactions. Show calculations.

Hobson Company bought the securities listed below during 2008. These securities were classified as trading securities. In its December 31, 2008, income statement Hobson reported a net unrealized loss of $13,000 on these securities. Pertinent data at the end of December 2009 are as follows: What amount of loss on these securities should Hobson include in its income statement for the year ended December 31, 2009?

On January 2, 2008, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale. Ranger's net income for the years ended December 31, 2008 and 2009, were $10,000 and $50,000, respectively. During 2009, Ranger declared and paid a dividend of $60,000. There were no dividends in 2008. On December 31, 2008, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2009 income statement as income from this investment?

Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security.

Which of the following is not true about the fair value option?

What balance sheet amount would Beresford report for its total investment securities at 12/31/08?

Which of the following increases the investment account under the equity method of accounting?

On July 1, 2009, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. The book value and fair value of Mountain's net assets on July 1, 2009 equals the total price of the 30,000 outstanding shares: $700,000. The total price of the 30,000 shares of Mountain's common stock on December 31, 2009 is $760,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009: Required: (1.) Prepare the necessary entries for 2009 under the equity method (other than for the purchase). (2.) Prepare any necessary entries for 2009 (other than for the purchase) that would be required if the securities are classified as available for sale. $\begin{array}{ll}\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \\\text { Net income, July 1 - December 31 } & \$ 18,000 \\\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \\\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000\end{array}$

Required: What gain or loss would be realized if the available for sale securities on Arctic Cat's 3/31/05 balance sheet were sold immediately for their fair value? Show the journal entry that would record the sale, and show a journal entry to record the effects of the sale on their fair value adjustment at the end of the period (ignore taxes).

The rules of FASB Statement No. 115, "Accounting for Certain Debt and Equity Securities," generally apply when the percentage of ownership of another company is:

On April 1, 2009, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets. BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2009, and the rest to goodwill. LittleTick recognized a total of $20,000 of net income for 2009, and paid a total of $10,000 of dividends to shareholders. BigBen's investment in LittleTick will affect BigBen's 2009 net income by: