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Exam 14: Investments

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Question 31

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Athletic Accessories has the following transactions related to investments in common stock. 1. Record each of these transactions, including an entry on December 31 to adjust the investment to fair value. 2. Calculate the balance of the investment account on December 31.

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The balance in the Investments account ...

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Question 32

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Gains and losses on the sale of equity investments are recorded in the income statement as part of net income.

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Question 33

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

Discuss the meaning of consolidated financial statements. When is it appropriate to consolidate financial statements of two companies?

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: GIC purchased the bonds:

On September 1, Investors, Inc. purchases 1,000 shares (insignificant influence) of $1 par value common stock of Hamilton International at $15 per share. On October 15, the investment is sold for $18 per share. Record the purchase and sale of the investment in Hamilton International.

General Investment Co. (GIC) purchased bonds on January 1, 2012. GIC's accountant has projected the following amortization schedule from purchase until maturity: What is the annual market interest rate on the bonds?

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

On January 1, 2012, Gilman Company purchased 10,000 of the 40,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment. Gilman can exercise significant influence over Burke and properly records the investment using the equity method. The records of Burke Corporation showed the following at December 31, 2012: $\begin{array} { | l | l | } \hline \text { Net Income } & \$ 500,000 \\\hline \text { Dividends Paid } & \$ 200,000 \\\hline \text { Market Price per Share } & \$ 38 \\\hline\end{array}$ What amount should Gilman Company report in its December 31, 2012, balance sheet for its investment in Burke?

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

How can an investor benefit from an equity investment that does not pay dividends?

Investments in equity securities for which the investor has insignificant influence over the investee are classified for reporting purposes under the fair value method in one of two categories. What are these two categories? How do we report unrealized holding gains and losses under each of these two categories?