39.
Lyrical Company purchased equity securities for $500,000 and classified them as trading
securities on September 15, 2016. On December 31, 2016, the current fair value of the
securities was $481,000. How should the investment be reported within the 2016 financial
statements?
40.
Libby Company purchased equity securities for $100,000 and classified them as available–for–
sale securities on September 15, 2016. At December 31, 2016, the current fair value of the
securities was $105,000. How should the investment be reported in the 2016 financial
statements?
41.
On January 1, 2016, Short Company purchased as an available–for-sale investment, 20,000
shares (15% of the outstanding voting shares) of Daniel Corporation’s $1 par value common
stock at a cost of $50 per share. During November 2016, Daniel declared and paid a cash
dividend of $1.25 per share. At December 31, 2016, end of the accounting period, Daniel’s
shares were selling at $48. The 2016 financial statements for Short Company should report
the following amounts:
Long-Term
Investment
Unrealized
Holding
Gains/(Losses)
Investment
Revenue
A.
$1,000,000
($40,000)
$25,000
B.
960,000
Zero
Zero
C.
1,000,000
(15,000)
Zero
D.
960,000
(40,000)
25,000
42.
On July 1, 2016, as a long-term investment in available–for-sale securities, Wildlife Supply
Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock
of Nature Company for $30 per share. The records of Nature Company reflect the following:
2016 net income
$60,000
Dividends declared and paid during
December, 2016
$6,500
December 31, 2016 market price per share
$27
The amount reported on the balance sheet by Wildlife Company for its investment at
December 31, 2016 would be which of the following?
43.
On July 1, 2016, Surf Company purchased long-term investments in available-for-sale
securities as follows:
Blue Corporation common stock (par $5) 2,000 shares at $16 per share.
Black Company preferred stock (par $20) 1,500 shares at $30 per share.
The quoted market prices per share on December 31, 2016 were as follows:
Blue Corporation stock, $15 per share
Black Company stock, $30 per share
Each of the long-term investments represents 10% of the total shares outstanding. The
combined carrying value of the long-term investments reported in the balance sheet at
December 31, 2016 would be which of the following?
44.
When accounting for investments in trading securities, any decline in fair value below the cost
of the investments is reported in which of the following ways?
45.
The primary difference in accounting for available–for-sale investments in stock and
accounting for trading investments in stock is which of the following?
46.
On July 1, 2016, Carter Company purchased trading securities as follows:
Dark Corporation common stock (par $1) 10,000 shares at $25 per share.
Janin Corporation preferred stock (par $100) 2,000 shares at $105 per share.
The quoted market prices per share on December 31, 2016 were as follows:
Dark Corporation stock, $27 per share
Janin Corporation stock, $104 per share
Each of the investments represented 5% of the total shares outstanding. The carrying value
amount of the investments at December 31, 2016 should be
47.
Which of the following is true about a passive investment in common stock?
48.
Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock, which
constitutes 10% of Martin’s voting stock on June 30, 2016 for $42 per share. Phillips’ intent is
to keep these shares beyond the current year. On December 20, 2016, Martin paid a
$4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and
Martin reported 2016 net income of $52 million.
What method of accounting will Phillips use to account for this investment?
49.
Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock, which
constitutes 10% of Martin’s voting stock on June 30, 2016 for $42 per share. Phillips’ intent is
to keep these shares beyond the current year. On December 20, 2016, Martin paid a
$4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and
Martin reported 2016 net income of $52 million.
What effect will the dividend have on Phillips’ 2016 financial statements?
50.
Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common stock, which
constitutes 10% of Martin’s voting stock on June 30, 2016 for $42 per share. Phillips’ intent is
to keep these shares beyond the current year. On December 20, 2016, Martin paid a
$4,000,000 cash dividend. On December 31, Martin’s stock was trading at $45 per share and
Martin reported 2016 net income of $52 million.
What investment value will be reflected on Phillips’ balance sheet at December 31, 2016?
51.
McGinn Company purchased 10% of RJ Company’s common stock during 2016 for $100,000.
The 10% investment in RJ had a $90,000 fair value at the end of 2016 and a $105,000 fair
value at the end of 2017.
Which of the following statements is incorrect if McGinn classifies the investment as an
available-for-sale security?
52.
McGinn Company purchased 10% of RJ Company’s common stock during 2016 for $100,000.
The 10% investment in RJ had a $90,000 fair value at the end of 2016 and a $105,000 fair
value at the end of 2017.
Which of the following statements is correct if McGinn classifies the investment as a trading
security?
53.
McGinn Company purchased 10% of RJ Company’s common stock during 2016 for $100,000.
The 10% investment in RJ had a $90,000 fair value at the end of 2016 and a $105,000 fair
value at the end of 2017.
Which of the following statements is correct if McGinn classified the investment as a trading
security and sold it at the beginning of 2018 for $102,000?
54.
McGinn Company purchased 10% of RJ Company’s common stock during 2016 for $100,000.
The 10% investment in RJ had a $90,000 fair value at the end of 2016 and a $105,000 fair
value at the end of 2017.
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 2018 for $102,000?
55.
Rye Company purchased 15% of Lena Company’s common stock during 2016 for $150,000.
The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value
at the end of 2017.
Which of the following statements is incorrect if Rye classifies the investment as an
available-for-sale security?
56.
Rye Company purchased 15% of Lena Company’s common stock during 2016 for $150,000.
The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value
at the end of 2017.
Which of the following statements is correct if Rye classifies the investment as a trading
security?
57.
Rye Company purchased 15% of Lena Company’s common stock during 2016 for $150,000.
The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value
at the end of 2017.
Which of the following statements is correct if Rye classifies the investment as a trading
security and sold it at the beginning of 2018 for $148,000?
58.
Rye Company purchased 15% of Lena Company’s common stock during 2016 for $150,000.
The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value
at the end of 2017.
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 2018 for $148,000?
59.
Which of the following best describes the numerator of the economic return from investing
ratio?
60.
Allyn Company owns 10% of the Cordon Company common stock. The economic return from
investing ratio that Allyn calculates contains which of the following components?
AACSB: Reflective Thinking