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Exam 16: Accounting for Debt and Share Investments

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Question 1

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On January 1,Year 1,Froelich Corporation purchased 5,500 shares of SportTech Ltd.as a long-term investment for a total of $206,195.The 5,500 shares represented 30% of the outstanding shares of SportTech.At the end of Year 1,SportTech reported a loss of $66,000 for the year.In Year 2,Froelich had the following long-term investment transactions.Assume Froelich owns 25% of SportTech at December 31,Year 2.Prepare the journal entries to record the transactions for Year 2.

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Non-strategic investments are usually held as an investment of cash for use in current operations.

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B) False

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Question 3

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Music City paid $37,800 plus a broker's fee of $525 to acquire 8% Airport Corp bonds with a $40,000 maturity value.Music City intends to hold the bonds to maturity.The journal entry to record acquisition of the bonds includes a debit to Long-Term Investment in Airport Bonds for:

World Co.paid $25,000 to buy 10% Core Power bonds payable.The bonds pay semi-annual interest on June 30^th and December 31^st.World Co.paid $100 commission.World Co.intends to hold these bonds for 9 months and then trade them.The entry to record this purchase is:

Investments non-strategic debt investments require the investor to record interest revenue as it accrues.

On October 31,Classical City received dividends of $0.23 per share from its short-term Investment in 500 Violin Corp.common shares.Classical City had no significant influence on Violin Corp.Prepare the journal entry to record the receipt of the dividends.

Prepare general journal entries for the following transactions involving short-term securities (assume no investments were held prior to the following transactions): (a)Feb 16: Purchased 500 City Corp shares at $35 per share.Commission was $30. (b)Feb 26: Purchased 800 Southside Corp shares at $25 per share,no commission. (c)Mar 2: Received a $4 per share dividend on the City Corp shares. (d)Mar 28: Sold 150 shares of City Corp at $40 per share. (e)April 20: Sold 250 shares of Southside Corp at $20 per share. (f)April 30: End of the quarter.The company is preparing quarterly statements.Fair values for securities are as follows: City Corp $42 per share,and Southside Corp $21 per share.

The method used to account for non-strategic investments is the:

Purchases of long-term debt investments are never initially recorded at fair value.

On December 31,Cast Corporation had the following non-strategic short-term equity investments.Prepare the appropriate adjusting entry.

A controlling influence over the investee is based on the investor owning voting shares exceeding:

Significant influence investments:

Accounting for long-term investments in equity securities with controlling influence uses the:

On May 15,Kingswood Company purchased 30% worth of Pineview Ltd's common shares as a significant influence investment.On September 30,Pineview announced that net income for the year amounted to $650,000.Kingswood should record a debit to Investment in Pineview Common Shares of $195,000 and a credit to Earnings from Investment in Pineview of $195,000.

Proportionate consolidation combines the financial statement of an investor and a joint operation enterprise based on the investors proportionate share of the joint operations.

Prepare general journal entries to record the following transactions for The Chocolate Factory in its first year of operations: (a)On May 4,as a short term investment,purchased 500 shares of Power Corp.,paying a $500 brokerage fee. (b)On July 1,received $2.00 per share cash dividend on the Power Corp.shares. (c)On September 15,sold 300 Power Corp.shares for $120 per share,incurring a $500 brokerage fee. (d)The December 31 fair value of the company's short term investmentin Power Corp revealed a $2,000 unrealized gain.

Non-strategic investments can result in gains or losses for a company.

Investments in short-term equity securities are always _____________ and are reported as _______________.

A decrease in the fair value of a security that has not yet been confirmed by the sale of the security is called a(n) :

When a company purchases the shares of another company with the goal of participating in new markets or technologies,they are considered non-strategic investors.