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Exam 9: Investments

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Question 41

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On its December 31, 2011, balance sheet, Merck Co.reported its temporary investment in equity securities, under the fair value through net income model at $330,000.At December 31, 2012, the fair value of the securities was $350,000.What should Merck report on its 2012 income statement as a result of the increase in fair value of the investments in 2012?

A) $0
B) Loss on investments of $10,000
C) Unrealized gain of $20,000
D) Investment income of $20,000

E) None of the above
F) C) and D)

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Question 42

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Comprehensive income is included as part of

A) retained earnings.
B) net income.
C) shareholders' equity.
D) unearned revenue.

E) A) and B)
F) A) and C)

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Question 43

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Bitter Corporation accounts for its investment in the common shares of Young Company under the equity method.Bitter Corporation should ordinarily record a cash dividend received from Young as

Accumulated other comprehensive income includes

Use the following information for questions Fossil Company purchased 200 of the 1,000 outstanding shares of Ericksen Company's common shares for $60,000 on January 2, 2011.During 2011, Ericksen Company declared dividends of $10,000 and reported earnings for the year of $40,000. -If Fossil Company uses the cost model of accounting for its investment in Ericksen Company, its Investment in Ericksen Company account on December 31, 2011 should be

At December 31, 2011, Escot Corp.has the following equity securities (no significant influence) that were purchased earlier this year, its first year of operation: If the investments are correctly accounted for under the fair value through net income model the aggregate book value of the investment accounts should

On October 1, 2011, Moreau Co.purchased 500 of the $1,000 face value, eight percent bonds of Lear, Ltd., for $585,000, including accrued interest of $10,000.The bonds, which mature on January 1, 2018, pay interest semiannually on January 1 and July 1.Moreau used the straight-line method of amortization and appropriately recorded the bonds as long- term.On Moreau's December 31, 2012 balance sheet, the carrying value of the bonds is

Use the following information for questions Altadore Ltd.acquired 30% of Dorset Corp.'s common shares on January 1, 2011 for $240,000.During 2011, Dorset earned $100,000 and paid dividends of $60,000.Altadore's 30% interest in Dorset gives Altadore the ability to exercise significant influence over Dorset 's operating and financial policies.During 2012, Dorset earned $120,000 and paid dividends of $40,000 on April 1 and $40,000 on October 1.On July 1, 2012, Altadore sold half of its shares in Dorset for $158,000 cash. -What should be the gain on sale of this investment in Altadore's 2012 income statement?

The application of the incurred loss model in accounting for impairments

The test of marketability must be met before securities owned can be properly classified as

A bond is purchased at a discount and will be accounted for under the amortized cost model.The entry to record the amortization of the discount includes a

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

An investment that is intended to be held for three years should generally be classified as a(n)

Other comprehensive income does not include

Use the following information for questions Fossil Company purchased 200 of the 1,000 outstanding shares of Ericksen Company's common shares for $60,000 on January 2, 2011.During 2011, Ericksen Company declared dividends of $10,000 and reported earnings for the year of $40,000. -If Fossil Company uses the equity method of accounting for its investment in Ericksen Company, its Investment in Ericksen Company account at December 31, 2011 should be

If Nolte Company acquired a 20% interest in Boswell Company on December 31, 2011 for $65,000 and the equity method of accounting for the investment was used, the amount of the debit to Investment in Boswell Company would have been

The standards as they relate to the accounting for investments, differ under PE GAAP and IFRS.Which of the following statement(s) best describe(s) the treatment of transaction costs?

Kuhn Corp.began operations in 2011.An analysis of Kuhn's equity securities portfolio acquired in 2011 shows the following totals at December 31, 2011.Kuhn accounts for these investments under the fair value through net income model What amount should Kuhn report in its 2011 income statement for loss on investment?

At December 31, 2011, Sedge Inc.has the following portfolio of common shares in which it does not have significant influence: Assuming Sedge uses the fair value through other comprehensive income model to account for this portfolio of investments, the entry to record the year-end adjustment is

If Nolte Company acquired a 20% interest in Boswell Company on December 31, 2011 for $45,000 and during 2012 Boswell Company had net income of $25,000 and paid a cash dividend of $10,000, applying the equity method would give a debit balance in the Investment in Boswell Company account at the end of 2012 of