Chapter 12 – Reporting and Interpreting Investments in Other Corporations
82. McGinn Company purchased 10% of RJ Company’s common stock during 2010 for
$100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a
$105,000 fair value at the end of 2011. Which of the following statements is incorrect if
McGinn classifies the investment as available-for-sale security?
83. McGinn Company purchased 10% of RJ Company’s common stock during 2010 for
$100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a
$105,000 fair value at the end of 2011. Which of the following statements is correct if
McGinn classifies the investment as a trading security?
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
84. McGinn Company purchased 10% of RJ Company’s common stock during 2010 for
$100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a
$105,000 fair value at the end of 2011. Which of the following statements is correct if
McGinn classified the investment as a trading security and sold it at the beginning of 2012 for
$102,000?
85. McGinn Company purchased 10% of RJ Company’s common stock during 2010 for
$100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a
$105,000 fair value at the end of 2011. Which of the following statements is correct if
McGinn classified the investment as an available-for-sale security and sold it at the beginning
of 2012 for $102,000?
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
86. Rye Company purchased 15% of Lena Company’s common stock during 2010 for
$150,000. The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a
$140,000 fair value at the end of 2011. Which of the following statements is incorrect if Rye
classifies the investment as an available-for-sale security?
87. Rye Company purchased 15% of Lena Company’s common stock during 2010 for
$150,000. The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a
$140,000 fair value at the end of 2011. Which of the following statements is correct if Rye
classifies the investment as a trading security?
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
88. Rye Company purchased 15% of Lena Company’s common stock during 2010 for
$150,000. The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a
$140,000 fair value at the end of 2011. Which of the following statements is correct if Rye
classifies the investment as a trading security and sold it at the beginning of 2012 for
$148,000?
89. Rye Company purchased 15% of Lena Company’s common stock during 2010 for
$150,000. The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a
$140,000 fair value at the end of 2011. Which of the following statements is correct if Rye
classifies the investment as an available-for-sale security and sold it at the beginning of 2012
for $148,000?
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
90. Which of the following accounts is only created as the result of acquiring a controlling
interest in another company?
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
91. Complete the following matrix by writing a brief explanation in each cell to indicate the
appropriate approach for long-term investments.
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
92. A. Discuss the similarities of accounting for available-for-sale and trading securities
portfolios.
B. Discuss the differences encountered in accounting for available-for-sale and trading
securities portfolios.
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
93. On January 1, 2010, Heitzman Company purchased the following shares as a long-term
investment in available-for-sale securities:
The market value of the stocks subsequently were as follows:
Calculate the “Net unrealized gains/loss,” on both December 31, 2010 and December 31,
2011.
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
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94. On January 1, 2010, as a long-term investment in available-for-sale securities, John
Company purchased 1,000 of the 10,000 outstanding voting common shares of Wayne
Corporation at $9 per share. Wayne reported 2010 net income of $30,000 and declared and
paid cash dividends of $20,000. The market price of the Wayne stock at the end of 2010 was
$10 per share. Calculate the carrying value of John’s investment at the end of 2010.
95. On January 31, 2010, McBurger Corporation purchased the following shares of voting
common stock as long-term investments in available-for-sale securities. None of these
holdings amounted to more than 5% of the respective company’s outstanding voting shares.
The accounting period ends December 31.
All of the Bailey Corporation stock was sold for $13,500 on January 12, 2012. Prepare the
required journal entries at the following dates: January 31, 2010, December 31, 2010,
December 31, 2011 and January 12, 2012.
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
12–51
96. On March 1, 2011, Young Company purchased the following stock as long-term
investments in available-for-sale securities:
Old Corporation common stock (par $5), 2,000 shares at $5 per share (10% of outstanding
shares)
ABC Corporation common stock (par $10), 3,000 shares at $25 per share (15% of outstanding
shares)
XYZ Corporation common stock (par $10), 3,000 shares at $20 per share (10% of outstanding
shares)
The market prices per share at December 31, end of the accounting period, were as follows:
Prepare the required journal entries at the following dates: March 1, 2011, December 31, 2011
and December 31, 2012
Chapter 12 – Reporting and Interpreting Investments in Other Corporations
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Chapter 12 – Reporting and Interpreting Investments in Other Corporations
97. On January 1, 2010, Presto Corporation purchased, as a long-term investment, 5,000
shares of the outstanding common stock of Shazam Corporation at $30 per share. During
2010, the following events occurred at Shazam Corporation:
Requirements:
A. Prepare the journal entry for Presto Corporation to record the investment.
B. Assume two independent situations, Case A – 10% ownership and Case B – 40%
ownership. For each situation, prepare the following entries:
1. To recognize net income for 2010.
2. To record cash dividend declared and received.
3. To record market price of stock at year-end.