Accounting Appendix C Examples Would Unrealized Gain Loss Longterm Available for sale

142) Landmark Corp. buys $300,000 of Schroeter Company’s 8%, 5-year bonds payable, at par

value on September 1. Interest payments are made semiannually. Landmark plans to hold the

bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will

be:

A) Debit Long-Term Investments—HTM $300,000; credit Cash $300,000.

B) Debit Cash $300,000; credit Interest Revenue $300,000.

C) Debit Cash $300,000; credit Debt Investments—HTM $300,000.

D) Debit Cash $300,000; credit Interest Receivable $300,000.

E) Debit Cash $300,000; credit Bonds Payable $300,000.

143) On February 15, Jewel Company buys notes of Marcelo Corp. for $200,110. The

investment is classified as long-term available-for-sale securities. This is the company’s first and

only investment in available-for-sale securities. The journal entry to record the purchase on

February 15 is:

A) Debit Debt Investments—HTM $200,100; credit Cash $200,100.

B) Debit Debt Investments—AFS $200,110; credit Notes Payable $200,100.

C) Debit Debt Investments—Trading $200,100; credit Cash $200,100.

D) Debit Debt Investments—Trading $200,110; credit Notes Payable $200,110.

E) Debit Long-Term Investments—AFS $200,110; credit Cash $200,110.

144) On February 15, Jewel Company buys bonds of Marcelo Corp. for $200,000. The

investment is classified as available-for-sale securities. This is the company’s first and only

investment in available-for-sale securities. On December 31, the bonds had a fair value of

$200,300. The entry to record the year-end adjustment is:

A) Debit Cash $300; credit Dividend Revenue $300.

B) Debit Fair Value Adjustment—Available-for-Sale $300; credit Unrealized Gain—Equity

$300.

C) Debit Fair Value Adjustment—Available-for-Sale $300; credit Interest Revenue $300.

D) Debit Fair Value Adjustment—Available-for-Sale $300; credit Realized Gain—Income $300.

E) Debit Cash $300; credit Gain on Sale of Investments $300.

145) On February 15, Jewel Company buys bonds of Marcelo Corp. for $200,110 cash. This debt

investment is classified as available-for-sale securities. This is the company’s first and only

investment in available-for-sale securities. Jewel Company sells 40% of the Marcelo Corp. debt

investment on November 17 of the current year for $102,200 cash. The entry to record this sale

includes a:

A) Debit to Cash for $80,044.

B) Credit to Debt Investments—AFS for $80,044.

C) Debit to Loss on Sale of Debt Investments for $22,156.

D) Debit to Debt Investments—AFS for $80,044.

E) Credit to Loss on Sale of Debt Investments for $22,156.

146) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at

$28.53 per share. The stock is classified as a stock investment with insignificant influence. This

is the company’s first and only stock investment. On March 15, Marcelo Corp. declares a

dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company

received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on

November 17 of the current year for $29.30 per share. The journal entry to record the sale of the

3,500 shares of stock on November 17 is:

A) Debit Cash $102,550; debit Loss on Sale of Stock Investments $2,445; credit Stock

Investments $104,99.

B) Debit Cash $102,550; credit Long-Term Investments—Trading $99,855; debit Gain on Sale

of Long-Term Investments $2,695.

C) Debit Cash $102,550; credit Long-Term Investments—AFS $100,055; credit Gain on Sale of

Long-Term Investments $2,495.

D) Debit Cash $102,550; credit Stock Investments $99,855; credit Gain on Sale of Stock

Investments $2,695.

E) Debit Cash $102,550; credit Long-Term Investments—Trading $99,855; credit Gain on Sale

of Long-Term Investments $2,695.

147) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. at $28.53 per share.

The stock is classified as a stock investment with insignificant influence. This is the company’s

first and only stock investment. On March 15, Marcelo Corp. declares a dividend of $1.15 per

share payable to stockholders of record on April 15. Jewel Company received the dividend on

April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year

for $29.30 per share. The fair value of the remaining shares is $29.50 per share. The impact on

Jewel’s net income as a result of its investment in Marcelo Corp. was a(n):

A) Increase to income of $14,140.

B) Increase to income of $8,050.

C) Increase to income of $10,745.

D) Decrease to income of $8,050.

E) Decrease to income of $5,440.

148) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. at $28.53 per share.

The purchase is classified as a stock investment with insignificant influence. This is the

company’s first and only stock investment. On March 15, Marcelo Corp. declares a dividend of

$1.15 per share payable to stockholders of record on April 15. Jewel Company received the

dividend on April 30 and ultimately sells half of the Marcelo Corp. stock on November 17 of the

current year for $29.30 per share. The fair value of the remaining shares is $29.50 per share at

year-end. The amount that Jewel Company should report in the current-year income statement

from its investment in Marcelo Corp. is:

A) Unrealized Gain—Income; $10,295.

B) Realized Gain—Income; $3,395.

C) Unrealized Loss—Equity; $3,395.

D) Unrealized Gain—Income; $3,395.

E) Unrealized Loss—Income; $3,395.

149) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. at $28.53 per share.

The stock is classified as a stock investment with insignificant influence. This is the company’s

first and only stock investment. On March 15, Marcelo Corp. declares a dividend of $1.15 per

share payable to stockholders of record on April 15. Jewel Company received the dividend on

April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year

for $29.30 per share. The fair value of the remaining 3,500 shares is $29.50 per share. The

amount that Jewel Company should report in the asset section of its year-end December 31

balance sheet for its investment in Marcelo Corp. is:

A) $200,110.

B) $103,250.

C) $2,245.

D) $3,195.

E) $5,440.

150) Financial statements that show the financial statements of all entities under the parent’s

control, including all subsidiaries are called:

A) Comprehensive financial statements

B) Consolidated financial statements

C) Equity financial statements

D) Statement of owner’s equity

E) Investor financial statements

151) The two business entities involved in an investment in securities with controlling influence,

for which consolidated financial statements are prepared, are known as:

A) Parent and Investor

B) Subsidiary and Investee

C) Consolidator and Parent

D) Parent and Subsidiary

E) Both are referred to as partners.

152) Match the following terms with the appropriate definitions.

A. Equity method

B. Available-for-sale securities

C. Subsidiary

D. Long-term investments

E. Parent company

F. Return on total assets

G. Consolidated financial statements

H. Held-to-maturity securities

I. Trading securities

J. Unrealized gain (loss)

_______ (1) Investments in equity and debt securities that are not readily convertible to cash or

are not intended to be converted to cash in the short term.

_______ (2) A corporation controlled by another company when the controlling company owns

more than 50% of the investee’s voting stock.

_______ (3) Change in fair value that is not yet realized through an actual sale.

_______ (4) Financial statements that show the financial statements of all entities under the

parent’s control, including all subsidiaries.

_______ (5) A company that owns more than 50% controlling interest in a subsidiary.

_______ (6) Debt securities not classified as trading or held-to-maturity.

_______ (7) Debt securities that a company intends and is able to hold until maturity.

_______ (8) Debt securities that a company intends to actively manage and trade for profit.

_______ (9) A measure of financial performance, computed as net income divided by average

total assets.

_______(10) An accounting method for long-term investments in equity when the investor has

significant influence over the investee.

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153) Explain the difference between short-term and long-term investments. Cite examples of

each.

154) Discuss the reasons companies make investments.

155) Identify the classifications for debt investments in securities.What are the accounting basics

for debt investments, including acquisition, interest earned, and disposition?

156) What are the accounting basics for equity securities, including classification and accounting

method?

157) What is comprehensive income and how is it usually reported in the financial statements?

158) Explain how investors report investments in equity securities when the investor has a

controlling influence over an investee.

159) Define the foreign exchange rate between two currencies. Explain its effect on business

transactions conducted in a foreign currency.

160) Define the return on total assets and explain how it is used to measure a company’s financial

performance.

161) Explain how to record the sale of trading securities.

162) Explain how to account for held-to-maturity debt securities at and after acquisition and how

they are reported in the financial statements.

163) Explain how to account for available-for-sale debt securities at and after acquisition and

how they are reported in financial statements.

164) Explain how equity securities having significant influence are accounted for and reported in

the financial statements. Include a discussion of the criterion for these securities in terms of an

investee’s voting stock.

165) Explain how transactions (both sales and purchases) in a foreign currency are recorded and

reported.

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166) On January 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year

bonds, with a par value of $150,000; interest is paid semiannually on June 30 and December 31.

The company intends to hold these bonds until they mature. Prepare the journal entries to

record the bond purchase and receipt of the semiannual interest payments on June 30 and

December 31 of the current year.

167) On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year

bonds, with a par value of $200,000; interest is paid semiannually each May 1 and November 1.

The company intends to hold these bonds until they mature. Prepare the journal entry to record

the bond purchase.

168) On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year

bonds, with a par value of $200,000; interest is paid semiannually each May 1 and November 1.

The company intends to hold these bonds until they mature. Prepare the journal entry to record

the receipt of the first semiannual interest payment on November 1.

169) On January 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year

bonds, with a par value of $200,000; interest is paid semiannually each June 30 and December

31. The company intends to hold these bonds until they mature. Prepare the journal entry for

the interest received on December 31 of the current year.

170) A company paid $600,000 for 1-year, 10% bonds with a par value of $600,000 on July 1.

The bonds pay 5% interest semiannually on December 31 and June 30. The company intends to

hold the bonds until they mature. Prepare the journal entries for the following dates and

transactions related to this bond acquisition.

(1) Bonds purchased on July 1.

(2) Receipt of semiannual interest only on December 31.

(3) Receipt of semiannual interest only on June 30.

(4) Redemption of the bonds at maturity on June 30.

171) On July 1 of the current year, a company paid $200,000 to purchase 7%, 10-year bonds

with a par value of $200,000; interest is paid semiannually on June 30 and December 31. The

company intends to hold the bonds until they mature. Prepare the journal entries to record (1) the

bond purchase, (2) the receipt of the first semiannual interest payment on December 31 of the

current year, and (3) the receipt of the second semiannual payment on June 30.

172) A company reported net sales of $850,000, net income of $200,000 and average total assets

of $575,000. Calculate its return on total assets.

173) A company had net income of $350,000 in Year 1 and $520,000 in Year 2. The company

had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the return

on total assets for Year 1 and Year 2. Did the company’s performance improve? Explain.

174) A company had net income of $45,000, net sales of $390,000, and average total assets of

$450,000 for the current year. Calculate the company’s profit margin, total asset turnover, and

return on total assets.

175) A company reported net income of $225,000, net sales of $2,500,000, and average total

assets of $2,100,000 for the current year. Calculate this company’s profit margin, total asset

turnover, and return on total assets.

176) A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also

reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company’s average total

assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company’s profit

margin, total asset turnover and return on total assets for Year 1 and Year 2. Did the company’s

return on total assets improve? What component(s) might explain this change?