ch12
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ch12

Course Number: ACCT 201, Spring 2011

College/University: Community College of...

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ch12 Student: ___________________________________________________________________________ 1. Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates. True False All investments in debt securities whose fair values are not readily determinable are carried at historical cost. True False Both debt and equity...

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___________________________________________________________________________ 1. Securities ch12 Student: classified as held to maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates. True False All investments in debt securities whose fair values are not readily determinable are carried at historical cost. True False Both debt and equity securities can be categorized as trading securities. True False Net unrealized holding gains (losses) are reported in the income statement for trading securities. True False Purchases and sales of securities are always reported as investing activities in a statement of cash flows. True False Routine transfers of debt and equity investments among the trading, available for sale, and held to maturity portfolios need not be disclosed in the financial statements. True False Both trading securities and securities available for sale are reported at their fair values. True False All securities considered available for sale should be reported as current assets in a classified balance sheet. True False Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale. True False 2. 3. 4. 5. 6. 7. 8. 9. 10. When available-for-sale securities are sold, the full amount of any gain or loss realized on the sale is included in before-tax net income. True False 11. Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee. True False 12. The equity method is in many ways a partial consolidation. True False 13. Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets. True False 14. When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost. True False 15. If an investment is accounted for under the equity method, the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment. True False 16. Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security. True False 17. The fair value option can not be elected for significant-influence investments, because those must be accounted for under the equity method. True False 18. Under IAS No. 39, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP. True False 19. Under IFRS No. 9, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP. True False 20. Under IFRS No. 9, debt investments are classified as either "available for sale" or "fair value through profit and loss (FVTPL)." True False 21. Under IFRS No. 9, debt investments are classified as either "amortized cost" or "fair value through profit and loss (FVTPL)." True False 22. Under IFRS No. 9, equity investments are classified as either "fair value through other comprehensive income (FVTOCI)" or "fair value through profit and loss (FVTPL)." True False 23. Under IAS No. 39, transfers of debt investments equity investments out of the FVTPL category into AFS or HTM are permitted under "rare circumstances." True False 24. Under IFRS No. 9, cost can be used as an estimate of fair value in some circumstances. True False 25. Indicate (by letter) the level of stock ownership that most frequently relates to each concept listed below. 1. More The investor can significantly influence, but not control, the __ than 50% investee's operating and financial policies. __ 2. Less The reporting of the investment depends on the intent of __ than 20% management to hold or trade it. __ 3. More The investment is reported at cost, adjusted for subsequent __ than 50% growth in the investee. __ 4. More The investment is reported at fair value. __ than 50% __ 5. More Financial statements are combined as if a single company. __ than 50% __ 6. 20% The investor controls the investee. __ 50% __ 7. Less Unrealized gains and losses are recorded at each reporting __ than 20% date. __ 8. Less The investee is a subsidiary of the investor. __ than 20% __ 9. More Assets and liabilities of the investee are combined with those __ than 50% of investor for reporting purposes. __ 10. 20% The investor does not include an investment account for the __ 50% investee in the balance sheet. __ 26. Indicate (by letter) the way each of the investments listed below usually should be accounted for under U.S. GAAP based on the information provided. 1. Trading Treasury bonds held for their entire life. _ Securities __ _ 2. Trading Accounts Receivable. _ Securities __ _ 3. Equity Treasury bonds held for short-term profit. _ Method __ _ 4. Securities Common stock held for immediate resale. _ Held to __ Maturity _ 5. Consolida 40% of the voting common stock of XYZ Company. _ t i on __ _ 6. Securities 85% of the voting common stock of ABC Corporation. _ Held to __ Maturity _ 7. Equity 25% of the voting common stock of DEF Corporation. _ Method __ _ 8. None of 50% of the voting common stock of JMG Corporation. _ the above __ _ 9. Equity 18% of voting common stock of Griggs corporation; _ Method investor's CEO on the board of directors of Griggs Corp; no__ other investor owns more than 1%. _ 10. Equity Corporate bonds to be held for full term of 10 years. _ Method __ _ 27. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Dividends received Temporary declines in the fair value of an __ available for sale security. __ 2. Unrealized losses Reported at fair value. __ __ 3. Trading securities and Changes in market value affect __ securities available for sale comprehensive income, but not net income. __ 4. Trading securities only Changes in market value affect net __ income. __ 5. Securities available for sale Reduces the investment account balance __ only under the equity method. __ 28. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. IFRS No. 9 Does not allow the "held-to-maturity" approach for _ debt investments. __ _ 2. Accounting Can be accounted for as "fair value through profit _ mismatch and loss" or as "fair value through other comprehensive__ income" under IFRS No. 9. _ 3. Business model One of the criteria that must be met under IFRS No. _ t est 9 to qualify for use of the amortized cost method. __ _ 4. Equity Similar to available for sale investments, except _ investments realized gains and losses are not reclassified into net__ income. _ 5. Fair value One of the circumstances in which the fair-value _ through other option can be used under IFRS. __ comprehensive _ income 29. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Unrealized gains Result from a decline in fair value prior to ___ sale. _ 2. Unrealized losses Change accounted for prospectively. ___ _ 3. Financial instruments Change accounted for retrospectively. ___ _ 4. Change from the equity Encompass cash, equity securities, and debt ___ method securities _ 5. Change to the equity When related to trading securities, they ___ method increase net income. _ 30. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Amortization of a patent Recognized only to the extent of carrying _ that was obtained in a business value under the equity method. __ acquisition _ 2. Losses of investee Reported in the income statement for _ trading securities. __ _ 3. Unrealized holding gains Reduces investment account under the _ and losses equity method if its fair value is higher than__ its book value. _ 4. Impairment of securities Requires positive intent and ability. _ available for sale __ _ 5. Securities held to maturity Requires recognition in the income _ statement if judged to be other than__ temporary. _ 31. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Dividends Can be required in the future when, at the time an equity- _ method investment is made, the fair value of investee's__ identifiable net assets exceeds their carrying value. _ 2. Equity Recognized as revenue for available-for-sale investments, _ method but not equity-method investments. __ _ 3. Consolidati Used when investor can significantly influence investee. _ on __ _ 4. Additional Used when investor has effective control of investee. _ depreciation __ _ 5. Investor's Recognized as revenue for equity-method investments, but _ share of not for available-for-sale investments. __ investee _ income 32. The investment category for which the investor's "positive intent and ability to hold" is important is: A. Securities reported under the equity method. B. Trading securities. C. Securities classified as held to maturity. D. Securities available for sale. 33. Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? A. Long-term debenture bonds. B. Common stock. C. Callable preferred stock. D. All of the above are correct. 34. Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet? A. Common stock held as available for sale securities. B. Debt securities held to maturity. C. Preferred stock held as trading securities. D. All of the above are reported at fair value. 35. Both fair values and subsequent growth of the investee are not as relevant for investments in which of the following categories? A. Securities reported under the equity method. B. Trading securities. C. Held-to-maturity securities. D. Securities available for sale. 36. Which category completely excludes equity securities? A. Securities available for sale. B. Consolidating securities. C. Held-to-maturity securities. D. Trading securities. 37. In 2009, Osgood Corporation purchased $4 million in ten-year municipal bonds at face value. On December 31, 2011, the bonds had a market value of $3,600,000 and Osgood reclassified the bonds from held to maturity to trading securities. Osgood's December 31, 2011, balance sheet and the 2011 income statement would show the following: A. Option A B. Option B C. Option C D. Option D Beresford Inc. purchased several investment securities during 2008, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. 38. What balance sheet amount would Beresford report for its total investment securities at 12/31/10? A. $637,000 B. $644,500 C. $645,400 D. None of the above is correct. 39. What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/11 balance sheet (ignore taxes)? A. $55,100 B. $26,500 C. $10,400 D. None of the above is correct. 40. What total unrealized holding gain would Beresford report in its 2011 income statement relative to its investment securities? A. $55,900 B. $36,000 C. $80,900 D. $48,200 41. On January 1, 2011, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semi-annually on January 1 and July 1 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2011 journal entry to record the second period of interest, Rupar would record a credit to interest revenue of: A. $3336. B. $3325. C. $3000. D. $3500. 42. If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity, Dinsburry would: A. not reclassify the investment, as original classifications are irrevocable. B reclassify the investment as held to maturity and immediately recognize in net income all unrealized . gains and losses as of the reclassification date. C reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as . the investment's amortized cost basis for future amortization. D. reclassify the investment as held to maturity, but there would be no income effect. 43. If Ziggy Company concluded that an investment originally classified as held to maturity would now more appropriately be classified as available for sale, Ziggy would: A. not reclassify the investment, as original classifications are irrevocable. B reclassify the investment as available for sale and immediately recognize in net income any unrealized . gain or loss on the reclassification date. C reclassify the investment as available for sale and immediately recognize in accumulated other . comprehensive income any unrealized gain or loss on the reclassification date. D. need to restate earnings, as the original classification was in error. 44. If Dizbert Company concluded that an investment originally classified as available for sale would now more appropriately be classified as held to maturity, Dizbert would: A. not reclassify the investment, as original classifications are irrevocable. B reclassify the investment as held to maturity and immediately recognize in net income any unrealized . gain or loss on the reclassification date. C reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as . the investment's amortized cost basis for future amortization. D. need to restate earnings, as the original classification was in error. 45. Securities that are purchased with the intent of selling them in the near future to take advantage of shortterm price changes are classified as: A. Securities available for sale. B. Consolidating securities. C. Held-to-maturity securities. D. Trading securities. 46. The income statement reports changes in fair value for which type of securities? A. Securities reported under the equity method. B. Trading securities. C. Held-to-maturity securities. D. Securities available for sale. 47. Trading securities are most commonly found on the books of: A. Oil companies. B. Manufacturing companies. C. Banks. D. Foreign subsidiaries. 48. For trading securities, unrealized holding gains and losses are included in earnings: A. Only at the end of the fiscal year. B. On each reporting date. C. Only when they exceed 10% of the underlying investment. D. Based on a vote of the board of directors. 49. Trading securities, by definition, are properly classified in the balance sheet as: A. Shareholders' equity. B. Intangibles. C. Current assets. D. Other assets. 50. Holding gains and losses on trading securities are included in earnings because: A. They measure the success or failure of taking advantage of short-term price changes. B. The IRS mandates the inclusion. C. The SEC mandates the inclusion. D. They measure the book value of the securities in the balance sheet date. 51. In the statement of cash flows, inflows and outflows of cash from buying and selling trading securities typically are considered: A. Investing activities. B. Operating activities. C. Financing activities. D. Noncash financing activities. 52. Dyckman Dealers has an investment in Thomas Corporation that Dyckman accounts for as a trading security. Thomas Corporation shares are publicly traded on the New York Stock Exchange, and the prevailing price on that exchange indicates that Dyckman's investment is worth $20,000. However, Dyckman management believes that the stock market is generally overvalued, and their analysis of the Thomas investment suggests to them that it is worth $18,000. Dyckman should carry the Thomas investment on its balance sheet at: A. $20,000. B. $18,000. C. either $18,000 or $20,000, as either are defensible valuations. D. $19,000, the midpoint of Dyckman's range of reasonably likely valuations of Thomas. 53. Nichols Enterprises has an investment in 25,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shares are publicly traded on the New York Stock Exchange, and the Wall Street Journal quotes a price for those shares of $10/share, but Nichols believes the market has not appreciated the full value of the Elliott shares and that a more accurate price is $12/share. Nichols should carry the Elliott investment on its balance sheet at: A. $300,000. B. $250,000. C. either $250,000 or $300,000, as either are defensible valuations. D. $275,000, the midpoint of Nichols's range of reasonably likely valuations of Elliott. 54. Anthers Inc. bought the following portfolio of trading securities near the end of 2011. What amount will be reported in the balance sheet for this portfolio at December 31, 2011, and how will it be classified? A. Option A B. Option B C. Option C D. Option D 55. On January 1, 2011, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011? A. $284,400. B. $300,000. C. $315,600. D. $360,000. 56. Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $150,000 on May 5, 2010, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2010. Goofy reclassified this investment as trading securities in December of 2011 when the market value had risen to $125,000. What effect on 2011 income should be reported by Goofy for the Crazy Co. shares? A. B. C. D. $0. $25,000 net loss. $7,000 net gain. $32,000 net loss. 57. Hobson Company bought the securities listed below during 2010. These securities were classified as trading securities. In its December 31, 2010, income statement Hobson reported a net unrealized loss of $13,000 on these securities. Pertinent data at the end of December, 2011 are as follows: What amount of loss on these securities should Hobson include in its income statement for the year ended December 31, 2011? A. $41,000. B. $54,000. C. $13,000. D. $0. 58. What is the effect on a company's cash flows and reported profit from accounting for an investment as a trading security versus as an available-for-sale security? A. Option A B. Option B C. Option C D. Option D 59. The fair value of debt securities not regularly traded can be most reasonably approximated by: A. Calculating the discounted present value of the principal and interest payments. B. Determining the value using similar securities in the NASDAQ market. C. Using the relative fair value method. D. Calling a licensed and registered stockbroker. 60. All investments in debt and equity securities that don't fit the definitions of the other reporting categories are classified as: A. Trading securities. B. Securities available for sale. C. Held-to-maturity securities. D. Consolidated securities. 61. Investments in securities available for sale are reported at: A. Discounted present value. B. Lower of cost or market. C. Historical cost. D. Fair value on the reporting date. 62. All investment securities are initially recorded at: A. Cost. B. Present value. C. Equity value. D. None of the above is correct. 63. Accumulated Other Comprehensive Income in the shareholders' equity section of the balance sheet reflects changes in the fair value of securities for which type of securities? A. Securities available for sale. B. Trading securities. C. Consolidated securities. D. Held-to-maturity securities. 64. GAAP regarding accounting for certain debt and equity securities generally will apply to an investment when the percentage of ownership of another company is: A. Less than 20%. B. 20% to 50%. C. Over 50%. D. Exactly 100%. 65. When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as: A. A return of capital. B. A loss. C. A deduction from the investment account. D. Dividend income. 66. When an equity security is appropriately carried and reported as securities available for sale, a gain should be reported in the income statement: A. When the fair value of the security increases. B. When the present value of the security increases. C. Only when the Dow Jones Industrial Average increases at least 100 points. D. Only when the security is sold. 67. Investments in securities to be held for an unspecified period of time are reported at: A. Historical cost. B. Present value. C. Lower of cost or market. D. Fair value. 68. Unrealized holding gains and losses on securities available for sale would have the following effects on accumulated other comprehensive income: A. Option A B. Option B C. Option C D. Option D 69. In the statement of cash flows, inflows and outflows of cash from buying and selling available for sale securities are considered: A. Operating activities. B. Financing activities. C. Investing activities. D. Noncash financing activities. 70. Unrealized holding gains and losses on securities available for sale would have the following effects on retained earnings: A. Option a B. Option b C. Option c D. Option d 71. Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2011. In December, Hart announced $200,000 net income for 2011 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2011 would be: A. $0. B. $28,000. C. $56,000. D. None of the above is correct. 72. On January 2, 2010, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale. Ranger's net income for the years ended December 31, 2010 and 2011, were $10,000 and $50,000, respectively. During 2011, Ranger declared and paid a dividend of $60,000. There were no dividends in 2010. On December 31, 2010, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2011 income statement as income from this investment? A. $26,000. B. $7,200. C. $20,000. D. $27,200. 73. Jeremiah Corporation purchased securities during 2011 and classified them as securities available for sale: All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2011, income statement relative to the portfolio? A. $0. B. $16,000. C. $20,000. D. None of the above is correct. 74. Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2008 for $50 per share and classified the investment as securities available for sale. Diamond's market value was $60 per share on December 31, 2009 and $65 on December 31, 2010. During 2011, Hawk sold all of its Diamond stock at $70 per share. In its 2011 income statement, Hawk would report: A. A gain of $50,000. B. A gain of $150,000. C. A gain of $200,000. D. A gain of $300,000. 75. Dim Corporation purchased 1,000 shares of Witt Corporation stock in 2008 for $800 per share and classified the investment as securities available for sale. Witt's market value was $400 per share on December 31, 2009, and $300 on December 31, 2010. During 2011, Dim sold all of its Witt stock at $350 per share. In its 2011 income statement, Dim would report: A. A realized gain of $50,000. B. A recognition of unrealized losses of $400,000. C. A loss on the sale of investments of $450,000. D. A trading gain of $50,000 and an unrealized loss of $500,000. 76. On January 1, 2011, Everglade Company purchased the following securities and properly accounted for them as securities available for sale: All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its 2009 income statement? A. $0. B. $19,000 unrealized gain. C. $12,000 net unrealized gain. D. $7,000 unrealized loss. 77. Boulter, Inc. began business on January 1, 2011. At the end of December 2011, Boulter had the following investments in equity securities: All declines in value are deemed to be temporary in nature. How should the corresponding losses be reflected in the financial statements at December 31, 2011? A. B. C. D. Option A Option B Option C Option D 78. A weakness of ___(insert from choices below)____ is that firms can increase or decrease net income by choosing to sell particular investments with net unrealized gains or unrealized losses: A. the available-for-sale approach B. the trading-securities approach C. both the available-for-sale and trading-securities approaches D. neither the available-for-sale and trading-securities approaches 79. If an available-for-sale investment is sold for which there are unrealized gains in accumulated other comprehensive income (AOCI), a reclassification adjustment affects other comprehensive income (OCI) in the period of sale by A. reducing OCI for the amount of unrealized gains in AOCI. B. increasing OCI for the amount of unrealized gains in AOCI. C. no effect on OCI, as OCI only includes the effects of unrealized gains and losses. D. no effect on OCI, as the realized gain is included in AOCI. 80. If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI), the total effect on total comprehensive income is A. an increase. B. a decrease. C. no effect. D. can't determine given this information. 81. Seybert Systems accounts for its investment in Wang Engineering as available for sale. Seybert's balance in accumulated other comprehensive income with respect to the Wang investment is a credit balance of $20,000, and Seybert lists the investment at $100,000 on its balance sheet. Seybert purchased the Wang investment for (ignore taxes): A. $100,000. B. $120,000. C. $80,000. D. cannot be determined from this information. 82. Sloan Company has owned an investment during 2011 that has increased in fair value. After all closing entries for 2011 are completed, the effect of the increase in fair value on total shareholders' equity would be: A. higher under the available-for-sale approach than under the trading-securities approach. B. lower under the available-for-sale approach than under the trading-securities approach. C. the same amount under the available-for-sale and trading-securities approaches. D not possible to identify whether the available-for-sale or trading-securities approaches yield higher . shareholders' equity given this information. 83. When investments are treated as available-for-sale, other comprehensive income (OCI) also includes the tax effects associated with unrealized holding gains and losses. As a result: A accumulated other comprehensive income would be increased by the tax benefits typically associated . with unrealized holding gains. B. other comprehensive income typically would be reduced by the tax expense associated with unrealized holding gains. C. accumulated other comprehensive income would not be affected by taxes. D. none of the above. 84. The Guitar World (TGW) holds an investment that increased in fair value over 2011, and accounts for that investment as available for sale. When considering taxes, TGW would: A. recognize tax expense on the income statement, and probably increase taxes payable. B. recognize tax expense on the income statement, and probably increase its deferred tax liability. C. reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase taxes payable. D. reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase its deferred tax liability. 85. The equity method of accounting for investments in voting common stock is appropriate when: A. The investor can significantly influence the investee. B. The investor has voting control over the investee. C. The investor intends to hold the common stock indefinitely. D. The investor is assured of a continued supply of a valuable raw material. 86. Consolidated financial statements are prepared when one company has: A. Accounted for the investment using the equity method. B. Accounted for the investment as securities available for sale. C. Control over another company. D. None of the above is correct. 87. If Pop Company owns 15% of the common stock of Son Company, then Pop Company typically: A. Would record 15% of the net income of Son Company as investment income each year. B. Would record dividends received from Son Company as investment revenue. C. Would increase its investment account by 15% of Son Company income each year. D. All of the above are correct. 88. If Pop Company exercises significant influence over Son Company and owns 40% of its common stock, then Pop Company: A. Would record dividends received from Son Company as investment revenue. B. Would increase its investment account when Son Company declares dividends. C. Would record 40% of the net income of Son Company as investment income each year. D. All of the above are correct. 89. When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded: A. As a reduction in the investment account. B. As an increase in the investment account. C. As dividend income. D. As a contra item to stockholders' equity. 90. When the equity method of accounting for investments is used by the investor, the investment account is increased when: A. A cash dividend is received from the investee. B. The investee reports a net income for the year. C. The investor records additional depreciation related to the investment. D. The investee reports a net loss for the year. 91. Which of the following increases the investment account under the equity method of accounting? A. Decreasing the market price of the investee's stock B. Dividends paid by the investee that were declared in the previous year C. Net loss of the investee company D. None of the above is correct. 92. If the fair value of equity securities is not determinable and the equity method is not appropriate, the securities should be reported at: A. Amortized cost. B. Cost. C. Consolidated value. D. Net present value. 93. When the investor's level of influence changes, it may be necessary to change from the equity method to another method. When the level of ownership falls from a range of 20% to 50% to less than 20%, the equity method typically would be discontinued and the investment account balance would be carried over at : A. Amortized cost on the date of ownership change. B. Fair market value on the date of ownership change. C. Discounted present value on the date of ownership change. D. The current balance, and this balance would serve as the new "cost". 94. When the investor's level of influence changes, it may be necessary to change to the equity method from another method. When the level of ownership rises from less than 20% to a range of 20% to 50%, the equity method typically would become appropriate and the investment account balance should be: A. Retrospectively adjusted to the balance that would have existed if the equity method had been in effect for prior years. B. Carried over as is with no adjustment necessary. C. Carried over at fair market value on date of transfer. D. Adjusted to reflect amortized cost. 95. On July 1, 2011, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactly equal to 40% of the fair value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,000,000 for 2011, and paid $150,000 quarterly dividends to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of: A. $3,200,000. B. $3,160,000. C. $3,000,000. D. $3,080,000. 96. Which of the following is not true about accounting for investments under IFRS? A. IFRS allows proportionate consolidation of investments where two or more investors have joint control. B. IFRS is more restrictive than U.S. GAAP concerning when an investor can elect the fair value option. C IFRS requires that the accounting policies of an investee be adjusted to correspond to those of the . investor when applying the equity method. D. IFRS does not allow use of the equity method where two or more investors have joint control. 97. Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31 of 2010 and 2011, respectively. During 2011 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2011, their percentage ownership must have been: A. 15%. B. 18.75%. C. 30%. D. 50%. 98. Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2011. Jack can significantly influence Jill. On December 10, 2011, Jill declared and paid $1 million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should Jack report in its income statement for 2011 relative to its investment in Jill? A. $1 000,000. B. $1,200,000. C. $1,400,000. D. $1,500,000. 99. Hope Company bought 30% of Faith Corporation in 2011. Hope's purchase price equaled 30% of the book value of Faith's net identifiable assets, which also equaled 30% of the fair value of Faith. During 2011, Faith reported net income in the amount of $4,000,000 and declared and paid dividends in the amount of $500,000. Hope mistakenly accounted for the investment as available for sale instead of using the equity method. What effect would this error have on the investment account and net income, respectively, for 2011? A. Overstated by $1,050,000; understated by $1,050,000. B. Understated by $1,050,000; understated by $1,050,000. C. Overstated by $1,200,000; overstated by $1,200,000. D. Understated by $1,200,000; overstated by $1,050,000. 100.Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on Jan 1, 2011. On November 1, 2011, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss of $6 million for the year. What amount of loss should Sox report on its income statement for 2011 relative to its investment in Hack? A. $1,100,000. B. $2,400,000. C. $1,500,000. D. $1,600,000. 101.Assume that, on 1/1/11, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and fair value of Yankee's identifiable net assets were both $4,000,000 at 1/1/11. The following information pertains to Yankee during 2011: What amount would Matsui report in its year-end 2011 balance sheet for its investment in Yankee? A. $1,320,000 B. $1,260,000 C. $1,242,000 D. None of the above is correct. 102.Gerken Company concluded at the beginning of 2011 that the company's ownership interest in DillCo had increased to the point that it became appropriate to begin using the equity method to account for the investment. The balance in the investment account is $50,000 at the time of the change, and accountants working with company records determined that the balance would have been $75,000 if the account had been adjusted for investee net income and dividends as prescribed by the equity method. After implementing the change to the equity method, if financial statements were prepared, A. net income and retained earnings will be higher by $25,000. B. net income will be unchanged, and retained earnings will be higher by $25,000. C. net income and retained earnings will be higher by $75,000. D. the accounts will be unchanged, because no adjustment is necessary. 103.On April 1, 2011, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets. BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2011, and the rest to goodwill. LittleTick recognized a total of $20,000 of net income for 2011, and paid a total of $10,000 of dividends to shareholders. BigBen's investment in LittleTick will affect BigBen's 2011 net income by: A. a loss of $10,500. B. earnings of $4,500. C. earnings of $1,125. D. earnings of $3,450. 104.Cucumber Company concluded at the beginning of 2011 that the company's ownership interest in PickelCo had decreased to the point that it became appropriate to begin accounting for its investment as available for sale, rather than using the equity method as it had been doing. The balance in the investment account is $75,000 at the time of the change, and accountants working with company records determined that the balance would have been $50,000 if the investment had been accounted for as an available-forsale investment. At the time of implementing the change to the available-for-sale method, if financial statements were prepared, A. net income and retained earnings will be lower by $25,000. B. net income will be unchanged, and retained earnings will be lower by $25,000. C. the accounts will be unchanged, because no adjustment is necessary. D. other comprehensive income and accumulated other comprehensive income will be lower by $25,000. 105.When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition: A. Reduces the investment account and increases investment revenue. B. Increases the investment account and increases investment revenue. C. Reduces the investment account and reduces investment revenue. D. Increases the investment account and reduces investment revenue. 106.On January 1, 2011, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2011, Gold reported net income of $125,000 and paid cash dividends of $25,000. What is the carrying value of Green's investment in Gold at December 31, 2011? A. $295,000. B. $300,000. C. $315,000. D. $320,000. At the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $45 million. At the time of purchase, the carrying value of Sky Tech's net assets was $75 million. The fair value of Sky Tech's depreciable assets was $15 million in excess of their book value. For this year, Sky Tech reported a net income of $75 million and declared and paid $15 million in dividends. 107.The amount of purchased goodwill is: A. $18 million. B. $30 million. C. $60 million. D. None of the above is correct. 108.The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets i s: A. $4.5 million. B. $15 million. C. $27 million. D. None of the above is correct. 109.Assume that, on 1/1/11, Sosa Enterprises paid $5,100,000 for its investment in 36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an 8 year remaining useful life and straight-line depreciation with no residual value for its depreciable assets. At 1/1/11, the book value of Orioles' identifiable net assets was $7,000,000, and the fair value of Orioles was $10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction. The following information pertains to Orioles during 2011: What amount would Sosa Enterprises report in its year-end 2011 balance sheet for its investment in Orioles Co.? A. B. C. D. $3,200,000 $3,180,000 $3,135,000 $3,027,000 110.Smith buys and sells securities which it typically classifies as available for sale. On December 15, 2011, Smith purchased $500,000 of Jones shares, and elected the fair value option to account for the Jones investment. As of December 31, 2011, the Jones shares had a fair value of $525,000. In the 2011 financial statements, Smith will show (ignore taxes): A. investment income of $25,000 in its income statement. B. other comprehensive income of $25,000. C. accumulated other comprehensive income of $525,000. D. an investment in Jones of $500,000. 111.Which of the following is not true about the fair value option? A. The fair value option is irrevocable. B. The fair value option must be elected for all shares of an investment in a particular company. C. Electing the fair value option for held-to-maturity investments simply reclassifies those investments as trading securities. D. All of the above are true. 112.Which of the following is not true when the fair value option is elected for an investment that would normally be accounted for under the equity method? A. No journal entry need be made to recognize the investor's portion of the investee's net income. B. Unrealized gains and losses on that investment are recognized in net income. C. No journal entry need be made to recognize the investor's portion of dividends paid by the investee. D. All of the above are true. 113.Under IAS No. 39: which is not a category for accounting for investments? A. Fair value through profit and loss. B. Fair value through other comprehensive income. C. Held-to-maturity. D. Available-for-sale. 114.Under IFRS No. 9: which is not a category for accounting for investments? A. Fair value through profit and loss. B. Fair value through other comprehensive income. C. Held-to-maturity. D. Amortized cost. 115.Which of the following is NOT true about the "fair value through profit and loss" approach for accounting for investments under IFRS? A. Allowed under both IAS No. 39 and IFRS No. 9. B. Includes unrealized gains in earnings. C. Requires reclassification of realized gains from other comprehensive income. D. Not vulnerable to other-than-temporary impairments. 116.Which of the following is NOT true about the "fair value through other comprehensive income" approach for accounting for investments under IFRS No. 9? A. Allowed for debt investments. B. Includes unrealized gains in other comprehensive income. C. Does not require reclassification of realized gains from other comprehensive income. D. Allowed for equity investments. 117.Wang Corporation purchased $100,000 of Hales Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Wang classifies its investment as held to maturity. Unfortunately, a combination of problems at Hales and in the debt market caused the fair value of the Hales investment to decline to $70,000 during 2011. Wang calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and $20,000 relates to non-credit losses. If Wang accounts for the Hales bonds under IFRS, before-tax net income for 2011 will be reduced by: A. $0. B. $10,000. C. $20,000. D. $30,000. 118.If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company intends to sell the investment, A. the investment is not written down to fair value. B. the investment is written down to fair value, and the entire impairment loss is recognized in net income. C the investment is written down to fair value, and the entire impairment loss is recognized in . accumulated other comprehensive income. D. the investment is treated the same way it would be treated if the decline in fair value was viewed as temporary. 119.If the fair value of a held-to-maturity investment declines for a reason that is viewed as "other than temporary" because the company has incurred a credit loss on the investment, A the investment is written down to fair value, and only the non-credit-loss component of the impairment . loss is recognized in net income. B. the investment is written down to fair value, and the entire impairment loss is recognized in net income. C.the investment is written down to fair value, and only the credit-loss component of the impairment loss is recognized in net income. D. the investment is written down to fair value, but none of the impairment loss is recognized in net income. 120.If the fair value of a trading security declines for a reason that is viewed as "other than temporary", A. the investment is not written down to fair value. B. the investment is written down to fair value, and a special "impairment loss" is recognized in net income. C.the investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income. D. the investment is treated the same way it would be treated if the decline in fair value was viewed as temporary. 121.When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," the investment is written down to its fair value and the amount of the write-down is: A. Recorded as a deferred credit. B. Included in income. C. Recorded as deferred asset. D. Treated as unrealized. 122.An OTT impairment for an equity investment is recognized if fair value declines below amortized cost and A. The company has incurred non-credit losses. B. The company does not have the intent and ability to hold the investment until fair value recovers. C. The company lacks intent to hold the investment until fair value recovers. D. The company has incurred credit losses. 123.If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temporary" because it is viewed as "more likely than not" that the investor will be required to sell the investment prior to recovering the amortized cost of the investment less any credit losses arising in the current year, A. the investment is not written down to fair value. B. the investment is written down to fair value, and the impairment loss is recognized in net income. C.the investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income. D. the investment is written down to fair value, and only the credit loss is included in net income. 124.If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temporary" because the company has incurred a credit loss on the investment, A the investment is written down to fair value, and only the non-credit-loss component of the impairment . loss is recognized in net income. B. the investment is written down to fair value, and the entire impairment loss is recognized in net income. C.the investment written is down to fair value, and only the credit-loss component of the impairment loss is recognized in net income. D. the investment is written down to fair value, but none of the impairment loss is recognized in net income. 125.Which of the following is NOT a reason to consider a decline in the fair value of a debt investment to be "other than temporary"? A. The investor determines that a credit loss exists on the investment. B. The investor intends to sell the investment. CThe investor believes it is "more likely than not" that the investor will be required to sell the investment . prior to recovering the amortized cost of the investment less any credit losses arising in the current year. D. The investor intends to hold the investment to maturity. Nichols Corporation purchased $100,000 of Holly Inc 6% bonds at par with the intent and ability to hold the bonds until they matured in 2015, so Nichols classifies its investment as held to maturity. Unfortunately, a combination of problems at Holly and in the debt market caused the fair value of the Holly investment to decline to $70,000 during 2011. Nichols calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and $20,000 relates to non-credit losses. 126.Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols is planning to sell the bonds in the near future. Before-tax net income for 2011 will be reduced by: A. $0. B. $10,000. C. $20,000. D. $30,000. 127.Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols believes it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value. Before-tax net income for 2011 will be reduced by: A. $0. B. $10,000. C. $20,000. D. $30,000. 128.Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols calculates that the bonds have incurred credit losses. Before-tax net income for 2011 will be reduced by: A. $0. B. $10,000. C. $20,000. D. $30,000. 129.Dicker Furriers purchased one thousand shares of Loose Corporation stock on January 10, 2010, for $800 per share and classified the investment as securities available for sale. Loose's market value was $400 per share on December 31, 2010, and the decline in value was viewed as temporary. As of December 31, 2011, Dicker still owned the Loose stock whose market value has declined to $100 per share. The decline is due to a reason that's judged to be other than temporary. Dicker's December 31, 2011, balance sheet and the 2011 income statement would show the following: A. Option A B. Option B C. Option C D. Option D 130.Which of the following is not an example of a derivative? A. Interest rate swap. B. Cash. C. Stock option. D. Forward contract. 131.Which of the following is not true about derivatives? A. Large losses on derivative investments have been reported in the press. B. Derivatives are so named because their value is derived from some underlying measure. C. Derivatives are useful instruments for managing risk. D. Accounting for derivatives is fully resolved and no additional rules or interpretations are likely. 132.Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. Show calculations, rounded to the nearest dollar. On March 1, 2011, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $103,000 plus accrued interest. The appropriate interest rate is 6%. Interest on these bonds is payable on January 1 and July 1 of each year. Navy's investment is accounted for as held to maturity. The fair value of the Treasury bonds is $104,000 at year end. Required: 133.(1.) Prepare the appropriate journal entry to record the acquisition of the bonds. (2.) Record the first two interest payments (ignore year-end accruals). On January 1, 2011, Wildcat Company purchased $93,000 of 10% bonds at face value. The bonds are to be held to maturity. The bonds pay interest semiannually on January 1, and July 1. Required: 134.On January 1, 2011, Hoosier Company purchased $930,000 of 10% bonds at face value. The bond market value was $980,000 on December 31, 2011. Required: Prepare the appropriate journal entry on December 31, 2011, to properly value the bonds assuming the bonds are classified as: (1.) Trading securities. (2.) Securities available for sale. (3.) Held-to-maturity securities. 135.FKG Inc. carries the following investments on its books at December 31, 2010, and December 31, 2011. All securities were purchased during 2010. Required: (1.) Prepare the necessary journal entries for FKG on December 31, 2010, and December 31, 2011. (2.) What net effect would the valuation of these stock investments have on 2009 net income? On 2011 net income? 136.Indicate how each of these transactions would affect the statement of cash flows for a corporation. Assume the statement of cash flows is prepared using the indirect method. Each transaction is assumed to be independent of the other transactions. The following transactions occurred during the year for XYZ Corporation: (a.) During the year, trading securities were purchased for $250,000. (b.) During the year, securities available for sale were purchased for $80,000. (c.) During the year, trading securities that are carried on the balance sheet at their fair value of $125,000 were sold for $125,000 cash. (d.) At the end of the year, the trading securities portfolio has an aggregate market value of $142,000 and an aggregate cost of $150,000. Required: 137.Prepare the appropriate journal entries to record the transactions for the year including year-end adjustments. Show calculations. Jackson Company engaged in the following investment transactions during the current year. Required: 138.Eastwood Enterprises owns 30,000 shares of the Van Cleef Company (5% of the outstanding equity of Van Cleef). Eastwood is trying to determine Van Cleef's fair value. The relevant facts are as follows: Eastwood bought the Van Cleef shares earlier in the accounting period for $10/share at a time when the shares were publicly traded on the New York Stock Exchange. Since Eastwood bought the shares, Van Cleef has been delisted and there is no longer an active market in the Van Cleef shares. Eastwood's internal valuation specialist estimates the Van Cleef shares to be worth $8/share. Eastwood plans to continue holding the shares, but may someday sell them if their value increases sufficiently. Required: (1) What is the fair value of Eastwood's investment in Van Cleef? Briefly explain your choice of fair value, and relate that choice to the requirements of GAAP regarding fair value measurement. (2) Prepare a journal entry to record any necessary fair value adjustment. 139.On March 17, 2010, Union Corporation purchased 5,000 shares of AZQ common stock as a long-term investment at $40 per share. On December 31, 2010, and December 31, 2011, the market value of the AZQ stock is $42 and $43, respectively. Required: (1.) What is the appropriate reporting category for this stock? Why? (2.) Prepare the adjusting entry on December 31, 2010. (3.) Prepare the adjusting entry on December 31, 2011. In its 2011 annual report to shareholders, Kirby Inc. included the following disclosure regarding its available for sale investments in securities: Required: 140.Prepare the journal entry (in thousands) that Kirby made at the end of 2011 to record the information disclosed above. 141.In 2010, Kirby made two adjustments to its available for sale investments. Required: Briefly explain the adjustments and why they occurred. Fragrance International, a large perfume manufacturer, reported the following in its 2011 annual report to shareholders: ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated other comprehensive income (loss) ("AOCI") included in the accompanying consolidated balance sheets consist of the following: CONSOLIDATED STATEMENTS OF CASH FLOWS Investments sold during 2011 originally cost $3.0 million. 142.Required: What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2011? Assume a 40% tax rate. 143.Required: Assuming a constant tax rate of 40%, what was the pre-tax accumulated unrealized gain or loss on available-for-sale securities at 7/1/10? 144.Required: Prepare journal entries that Fragrance International recorded at 6/30/11 to (1) record any necessary changes to the fair value adjustment for available-for-sale securities and (2) record any tax effects associated with those changes. 145.Bentz Corporation bought and sold several securities during 2011. Listed below is a summary of the transactions: Required: Prepare the journal entries for the above transactions. Show calculations. 146.(1.) Prepare the appropriate journal entry to record the purchase of the stock. (2.) Prepare the appropriate journal entry to record the sale of the stock. Krogstad Corporation bought 1,000 shares of Cole Inc. for $90 per share plus a brokerage fee of $1,800. Three months later, the shares were sold for $110 per share. The brokerage fee on the sale was $2,200. Required: 147.(1.) Prepare the journal entries to record the acquisition of the two investments. (2.) Prepare any necessary adjusting entries assuming the stocks are both classified as available for sale securities. During 2011, Largent Enterprises purchased stock as follows: May 17, Purchased 1,000 shares of Nugent common stock for $80 per share. July 12, Purchased 400 shares of Alfredo common stock at $60 per share, plus a $600 brokerage commission. Largent accounts for these investments as securities available for sale. At December 31, 2011, the market values of the securities were as follows: Required: Arctic Cat Inc., the snowmobile manufacturer, reported the following in its 2005 annual report to shareholders: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal bonds and money market funds and are classified as follows at March 31: Trading securities consist of $54,608,000 and $41,707,000 invested in various money market funds at March 31, 2005 and 2004, respectively, while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 2005. The unrealized gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity. Arctic Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: In its 2004 annual report, Arctic Cat disclosed that "The contractual maturities of available-for-sale debt securities at March 31, 2004, are $3,573,000 within one year and $3,340,000 from one year through five years." 148.Required: Assume Arctic Cat did not purchase any trading securities during 2005. Write a journal entry to record any unrealized holding gains or losses on trading securities during 2005. 149.Required: How much did Arctic Cat actually receive from the sale of available-for-sale securities during 2005? 150.Required: What gain or loss would be realized if the available for sale securities on Arctic Cat's 3/31/05 balance sheet were sold immediately for their fair value? Show the journal entry that would record the sale, and show a journal entry to record the effects of the sale on their fair value adjustment at the end of the period (ignore taxes). 151.Fredo, Inc purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2011. Sonny recognized a total of $400,000 of income during 2009, paid $30,000 of dividends to Fredo during 2009, and at December 31, 2011 the market value of the Sonny investment increased to $1,040,000. Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo accounts for that investment as (1) an available-for-sale investment, and (2) elects the fair-value option. 152.On February 2, 2011, MBH Inc. acquired 30% of the voting common stock of Construction Corporation as a long-term investment. Data from Construction Corporation's financial statements for the year ended December 31, 2011, include the following: Required: Prepare any necessary journal entries for MBH at December 31, 2011, under the equity method of accounting for investments. 153.Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2011. On January 1, 2011, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2011, was $80,000. During 2011, Short also paid cash dividends in the amount of $24,000. Required: 154.On January 1, 2011, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2011, was $80,000. During 2011, Short also paid cash dividends in the amount of $24,000. Required: Prepare the journal entries necessary to record the above information on American Corporation's books during 2011. 155.How should Silverwood report the above information in its year-end income statement and balance sheet? Discuss the rationale for your answer. On July 1, 2011, Silverwood Company purchased for cash 35% of the voting common stock of Yellowstone Corporation. Both companies have a December 31 fiscal year-end. Yellowstone Corporation, which is publicly traded on an organized stock exchange, reported its net income for the year to Silverwood and paid a dividend to Silverwood during the year. Required: 156.(1.) Prepare the necessary entries for 2011 under the equity method (other than for the purchase). (2.) Prepare any necessary entries for 2011 (other than for the purchase) that would be required if the securities are classified as available for sale. On July 1, 2011, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2011 are both $700,000. The total fair value of the 30,000 shares of Mountain's common stock on December 31, 2011 is $760,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2011: Required: 157.Matrix, Inc acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2011. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2011 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2011. Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Fredo accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option. 158.Bourne, Inc acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2011. The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date. During 2011 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2011. Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill on Bourne's financial statements, assuming Bourne accounts for the Webb investment (1) under the equity method, and (2) under proportionate consolidation as allowed by IFRS. 159.(1.) Prepare the entry to record the original investment in Mountain. (2.) Compute the goodwill (if any) on the acquisition. (3.) Prepare the necessary entries (other than acquisition) for 2011 under the equity method. On July 1, 2011, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. Assume the total book value and fair value of net assets is $650,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2011: Required: 160.On January 1, 2010, Bactin Corporation acquired 10% of Oakton Company for $100,000. On that date, the total book value and fair value of Oakton's net assets was $900,000. Any difference between cost and fair value is attributable to goodwill. In 2010, Oakton reported net income of $60,000 and paid dividends of $30,000. On January 1, 2011, Bactin Corporation bought another 10% of Oakton for $100,000, and on that date, the book value and fair value of Oakton's net assets still was $900,000 (the fair value of Oakton did not change during 2010). Bactin concluded that its 20% ownership now allowed it to significantly influence Oakton's operations. In 2011, Oakton reported net income of $80,000 and paid dividends of $40,000. Required: Prepare all journal entries for Bactin for 2010 and 2011, assuming no change in fair value of the Oakton stock during that time period. 161.1.) Prepare the appropriate 2011 journal entry to record insurance expense and the increase in the investment, assuming the cash surrender value of the policy increased according to the contract to $70,000. 2.) The CEO died at the end of 2011. Prepare the appropriate journal entry. LaBelle Corporation owns a $6 million whole life insurance policy on the life of its CEO, naming LaBelle as beneficiary. The annual premiums are $95,000 and are payable at the beginning of each year. The cash surrender value of the policy was $56,000 at the beginning of 2011. Required: In early December of 2011, Blue Corp purchased $40,000 of Yellow Company common stock, which constitutes less than 3% of Yellow's outstanding shares. Blue accounts for the Yellow investment as available for sale. By December 31, 2011, the value of the Yellow investment had fallen to $30,000, and Blue recorded an unrealized loss. By December 31, 2012, the value of the Yellow investment had fallen to $15,000, and Blue determined that it can no longer assert that it has both the intent and ability to hold the shares long enough for their fair value to recover, so Blue recorded an OTT impairment. By December 31, 2013, fair value had recovered to $20,000. 162.Required: Prepare appropriate entry(s) at December 31, 2011, and indicate how the scenario will affect net income, OCI, and comprehensive income. 163.Required: Prepare appropriate entry(s) at December 31, 2012 and indicate how the scenario will affect net income, OCI, and comprehensive income. 164.Required: Prepare appropriate entry(s) at December 31, 2013, and indicate how the scenario will affect net income, OCI, and comprehensive income. Instructions: The following answers point out the key phrases that should appear in students' answers. They are not intended to be examples of complete student responses. It might be helpful to provide detailed instructions to students on how brief or in-depth you want their answers to be. 165.Describe the general accounting procedures for reclassifying securities from one category to another held to maturity, available for sale, or trading. From time to time, debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change. Required: 166.Evaluate the rationale for these two diverse reporting requirements for equity securities. What arguments could be made to support each treatment? Previously, marketable equity securities were reported using a technique referred to as "lower of cost or market." The current accounting standard requires fair value reporting for trading securities and securities available for sale. Some accountants believe that the FASB was inconsistent when GAAP was issued requiring changes in the value of trading securities to be reported in the income statement and balance sheet, while changes in the value of securities available for sale are reported only in the balance sheet. Required: 167.During the fourth quarter of 2001, the Company recorded special charges and loss on securities totaling $17.0 million, or $13.5 million after-tax. Special charges of $9.8 million, or $6.2 million after-tax, were associated with a salaried workforce reduction of approximately 250 employees. Cash expenditures for 2001 related to this charge were $3.7 million. Loss on securities of $7.2 million resulted from the writedown of the remaining investment in a privately held Internet-related company. During the fourth quarter of 2000, the Company recorded special charges and loss on securities totaling $57.5 million, or $36.5 million after-tax. Special charges of $39.9 million, or $25.3 million after-tax, were associated with terminated product initiatives, asset write-downs and executive severance costs related to management changes. Loss on securities of $17.6 million, or $11.2 million after-tax, resulted from a lower market valuation of securities of TurboChef Technologies, Inc. and investments in privately held Internet-related Companies .. The loss on securities charge of $17.6 million was non-cash. Required: Discuss the possible rationale behind the losses on securities reported by Maytag in 2000 and 2001. In its 2001 annual report to shareholders, Maytag Corporation included the following disclosures in its income statement and related footnotes: CONSOLIDATED STATEMENTS OF INCOME Special Charges and Loss on Securities 168.Companies need to consider GAAP regarding fair value measurements when determining the fair value of an investment which distinguishes between various levels of inputs to fair value determination. Required: Describe the various levels of inputs, explaining key aspects that distinguish them, and indicate which level is most preferred and which is least preferred. 169.What classification procedure and subsequent classification could Jaycom follow in order to meet its objective? How will Jaycom justify its choice to the Jaycom auditors? Jaycom Enterprises has invested its excess cash in the stock of several different companies and desires to maximize income over the short-run. Jaycom is unsure about the appropriate investment policy and thus what reporting practice to follow. Required: 170.What factors determine which method should be used? What events are recorded when the equity method is used? What events are recorded when the securities are accounted for as available for sale? Newjohn Company owns stock in several affiliated companies. Investments in some of these affiliates are accounted for as securities available for sale while some are accounted for using the equity method. Required: 171.What securities must be classified within one of the three categories of held to maturity, available for sale, and trading? (Do not describe how to determine how securities are classified among these three categories.) Identify the four primary recording activities related to investments in securities. Discuss the following questions. Required: 172.What factors could be evidence of significant influence? What factors could be evidence of lack of significant influence? When an investor owns 20% to 50% of the voting stock of an investee company, the investor is presumed to exercise significant influence over the investee unless there is evidence to the contrary. Required: 173.What is the significance of owning more than 50% of the voting common stock of another company? Many corporations own more than 50% of the voting stock in other corporations. Sometimes these affiliated companies operate within the same industry, and many times the companies are in unrelated industries. Required: 174.Sometimes companies change the extent to which they can significantly influence an investee, such that they have to change to the equity method or from the equity method of accounting for the investment. Required: Describe the adjustments necessary when a company (1) changes to the equity method from another method, and (2) when a company changes from the equity method to another method. 175.Assume Gibson company is an equal partner in a joint venture with Glover company. Each company owns 50% of Pesci company, and equally shares decision making authority. Required: Describe how U.S. GAAP and IFRS differ in how they would have Gibson account for this investment. 176.According to GAAP, companies can elect the fair value option when accounting for many investments. Required: Describe how accounting for a held-to-maturity investment, an available-for-sale investment, and an equity-method investment is affected by a company electing the fair value option. 177.IFRS No. 9 is a standard that indicates accounting for investments when the investor does not have significant influence under the investee. Required: Explain how debt investments are accounted for under IFRS No. 9. What alternative accounting approaches are available, what determines whether an investment qualifies for each approach, and what are the key features of each approach with respect to accounting for unrealized gains and losses? 178.IFRS No. 9 is a standard that indicates accounting for investments when the investor does not have significant influence under the investee. Required: Explain how equity investments are accounted for under IFRS No. 9. What alternative accounting approaches are available, what determines whether an investment qualifies for each approach, and what are the key features of each approach with respect to accounting for unrealized gains and losses? ch12 Key 1. TRUE 2. FALSE 3. TRUE 4. TRUE 5. FALSE 6. FALSE 7. TRUE 8. FALSE 9. TRUE 10. TRUE 11. FALSE 12. TRUE 13. TRUE 14. FALSE 15. FALSE 16. TRUE 17. FALSE 18. TRUE 19. FALSE 20. FALSE 21. TRUE 22. TRUE 23. TRUE 24. TRUE 25. 20% - 50% :: The investor can significantly influence, but not control, the investee's operating and financial policies. and Less than 20% :: The reporting of the investment depends on the intent of management to hold or trade it. and 20% - 50% :: The investment is reported at cost, adjusted for subsequent growth in the investee. and Less than 20% :: The investment is reported at fair value. and More than 50% :: Financial statements are combined as if a single company. and More than 50% :: The investor controls the investee. and Less than 20% :: Unrealized gains and losses are recorded at each reporting date. and More than 50% :: The investee is a subsidiary of the investor. and More than 50% :: Assets and liabilities of the investee are combined with those of investor for reporting purposes. and More than 50% :: The investor does not include an investment account for the investee in the balance sheet. 26. Securities Held to Maturity :: Treasury bonds held for their entire life. and None of the above :: Accounts Receivable. and Trading Securities :: Treasury bonds held for short-term profit. and Trading Securities :: Common stock held for immediate resale. and Equity Method :: 40% of the voting common stock of XYZ Company. and Consolidation :: 85% of the voting common stock of ABC Corporation. and Equity Method :: 25% of the voting common stock of DEF Corporation. and Equity Method :: 50% of the voting common stock of JMG Corporation. and Equity Method :: 18% of voting common stock of Griggs corporation; investor's CEO on the board of directors of Griggs Corp; no other investor owns more than 1%. and Securities Held to Maturity :: Corporate bonds to be held for full term of 10 years. 27. Unrealized losses :: Temporary declines in the fair value of an available for sale security. and Trading securities and securities available for sale :: Reported at fair value. and Securities available for sale only :: Changes in market value affect comprehensive income, but not net income. and Trading securities only :: Changes in market value affect net income. and Dividends received :: Reduces the investment account balance under the equity method. 28. IFRS No. 9 :: Does not allow the "held-to-maturity" approach for debt investments. and Equity investments :: Can be accounted for as "fair value through profit and loss" or as "fair value through other comprehensive income" under IFRS No. 9. and Business model test :: One of the criteria that must be met under IFRS No. 9 to qualify for use of the amortized cost method. and Fair value through other comprehensive income :: Similar to available for sale investments, except realized gains and losses are not reclassified into net income. and Accounting mismatch :: One of the circumstances in which the fair-value option can be used under IFRS. 29. Unrealized losses :: Result from a decline in fair value prior to sale. and Change from the equity method :: Change accounted for prospectively. and Change to the equity method :: Change accounted for retrospectively. and Financial instruments :: Encompass cash, equity securities, and debt securities and Unrealized gains :: When related to trading securities, they increase net income. 30. Losses of investee :: Recognized only to the extent of carrying value under the equity method. and Unrealized holding gains and losses :: Reported in the income statement for trading securities. and Amortization of a patent that was obtained in a business acquisition :: Reduces investment account under the equity method if its fair value is higher than its book value. and Securities held to maturity :: Requires positive intent and ability. and Impairment of securities available for sale :: Requires recognition in the income statement if judged to be other than temporary. 31. Additional depreciation :: Can be required in the future when, at the time an equity-method investment is made, the fair value of investee's identifiable net assets exceeds their carrying value. and Dividends :: Recognized as revenue for available-for-sale investments, but not equitymethod investments. and Equity method :: Used when investor can significantly influence investee. and Consolidation :: Used when investor has effective control of investee. and Investor's share of investee income :: Recognized as revenue for equity-method investments, but not for available-for-sale investments. 32. C 33. A 34. B 35. C 36. C 37. B 38. A 39. C 40. B 41. A 42. D 43. C 44. C 45. D 46. B 47. C 48. B 49. C 50. A 51. B 52. A 53. B 54. D 55. D 56. B 57. A 58. C 59. A 60. B 61. D 62. A 63. A 64. A 65. D 66. D 67. D 68. D 69. C 70. C 71. C 72. B 73. A 74. C 75. C 76. A 77. C 78. A 79. A 80. C 81. C 82. C 83. B 84. D 85. A 86. C 87. B 88. C 89. A 90. B 91. D 92. B 93. D 94. A 95. D 96. D 97. C 98. B 99. B 100. A 101. C 102. B 103. A 104. C 105. C 106. C 107. A 108. A 109. D 110. A 111. B 112. C 113. B 114. C 115. C 116. A 117. B 118. B 119. C 120. D 121. B 122. B 123. B 124. C 125. D 126. D 127. D 128. B 129. A 130. B 131. D 132. 133. 134. 135. (d.) The $8,000 unrealized loss will be added to net income in arriving at cash flows from operations. (c.) The $125,000 decrease in trading securities will be added to net income in arriving at cash flows from operations. (b.) The $80,000 will be shown as an investing cash outflow. 136. (a.) The $250,000 cash payment for trading securities will be reflected as an increase in the balance of trading securities and deducted from net income in arriving at cash flows from operations. 137. (2) This is an available-for-sale investment, so the fair value adjustment would appear as follows: 138. (1) The fair value of the investment is $8/share x 30,000 shares = $240,000. The internal valuation specialist's valuation (considered a level 3 input per GAAP regarding fair value measurement) is used because there is no longer a reliable market quote (considered a level 1 input per GAAP regarding fair value measurement). 139. 140. 141. The first entry was to record the additional unrealized loss $3,564 thousand that Kirby had incurred from holding these securities. This raised the accumulated unrealized holding loss to $11,097 thousand on these investments. The second adjustment indicates the recognition (realization) of that accumulated loss. This occurred because Kraut either wrote off the investment or sold it at the end of the year. 142. $1.7 million gain before taxes ($4.7 proceeds - $3.0 securities). Taxes would be $0.68 million ($1.7 million x .4 tax rate). Thus, the after-tax gain would be $1.02 million. 143. $4.833 million unrealized gain. At a 40% tax rate, the after-tax unrealized gain is 60% of the total. Therefore, $2.9 million is 60% of the total. Total is $2.9/.6 = $4.833 million. 144. 145. 146. 147. 148. 149. $130,000 (i.e., $3,703,000 cash flow - $3,573,000 maturity). 150. Arctic would report a $91,000 gain (gross of tax). This is the difference between the amortized cost of the investments ($3,105,000) and their fair value ($3,196,000), or $91,000. The transaction would be recorded as follows: 151. 152. 153. 154. 155. The Silverwood Company should follow the equity method of accounting for this investment. Because Silverwood owns 35% of the voting stock of Yellowstone, the presumption of significant influence exists. 35% of Yellowstone's net income would be added to Silverwood's Investment account balance. Adjustments would also be made, if appropriate, to reflect additional depreciation. The investment account's adjusted balance would be reported as a long-term investment in the asset section of the balance sheet. 35% of Yellowstone's net income, minus any additional depreciation, would be reflected in Silverwood's income statement. Since the equity method is appropriate for this investment, the dividends would not be included in income, but would be deducted from the Investment account. 156. 157. 158. First note that, at purchase, fair value of Webb is $5,000,000/50% = $10,000,000, implying total goodwill of $10,000,000 - $8,000,000 = $2,000,000. All of the price differential is attributable to goodwill, because fair value of identifiable net assets equals their book value on the date of purchase. Goodwill is not amortized. 159. 160. 161. This adjustment has no effect on net income, but it reduces OCI and comprehensive income by $10,000. 162. Blue must record an unrealized loss of $10,000 to account for the fact that the fair value of Yellow's shares has fallen from the original cost of $40,000 to $30,000. On the income statement, the $25,000 will be shown as an OTT impairment loss. OCI will be increased by the $10,000 reclassification, such that the net effect on comprehensive income is $15,000. Blue also must reclassify the 2011 unrealized loss out of OCI and remove the fair value adjustment, making the following entry that reverses the 2011 entry: 163. Blue now must record an OTT impairment. To reduce the investment from its original cost of $40,000 to $15,000, Blue makes the following entry: 164. Subsequent to recording the OTT impairment, Blue continues to treat the investment as AFS, but with an amortized cost of $15,000. Given an increase in fair value to $20,000 during 2013, Kettle records a $5,000 unrealized gain, with no effect on net income but an increase of $5,000 to OCI and comprehensive income: 165. When a security is reclassified between two categories, the security is transferred at fair value on the date of transfer. Any unrealized holding gain or loss at reclassification should be accounted for in a manner consistent with the classification into which the security is being transferred. Reclassifications are quite unusual, so when they occur, footnote disclosures should describe the circumstances that resulted in the transfer. 166. When securities are actively managed, as trading securities are, with the express intent of profiting from short-term price changes, the gains and losses that result from holding securities during market price changes are appropriate measures of success or lack of success in that endeavor. On the other hand, securities available for sale are held for reasons other than profiting from short-term price changes so holding gains and losses are appropriately included in income only when realized upon sale of the investment. Also, unrealized gains and losses prior to sale may cancel one another out. 167. As indicated in the footnote, Maytag held investments in securities of TurboChef Technologies. These may have been treated as trading securities, in which case reductions in their values would have been recorded as a loss against income in 2000. Alternatively, this loss could result from permanent impairments in value, even if these were not treated by Maytag as trading securities. In addition, Maytag had investments in privately held Internet-related companies. The portion of the 2000 and 2001 losses on securities related to these investments seem to have resulted from permanent impairments. Note that the footnote disclosure indicates these were non-cash losses, thereby ruling out these losses having occurred as a result of Maytag selling the securities at a loss. 168. GAAP regarding fair value measurement distinguishes among three levels of inputs for fair value determination, where level 1 includes readily observable fair values (for example, from a securities exchange), level 2 inputs includes other observable amounts (for example, quoted values for similar items, or important inputs like interest rates), and level 3 inputs are unobservable, like the company's own assumptions. Level 1 is most preferred; level 3 least preferred. 169. If Jaycom classifies the securities as available for sale, none of the market value changes would be reflected in net income. However, all market value changes would be reflected in net income if Jaycom classifies these securities as trading. This demonstrates how some generally accepted accounting principles can potentially be used to manipulate earnings. To maximize income the company could classify securities that have decreased in value as available for sale while classifying as trading securities those that have increased in value. One way to justify this would be to argue that securities that were increasing in value could be sold at any time. The managers could also argue that they held declining securities indefinitely or until they felt the decline was over. However, appropriate accounting procedures require that an investor assign a reporting classification to each security at acquisition, with the classification chosen based on the company's intent at that time. Reasons for transfers between classifications must be explained in footnote disclosures. The equity method requires that a proportionate share of dividends and reported earnings be recorded as adjustments to respectively decrease and increase the investment account, with the proportion of reported revenue included in net income of the parent. Differences between the price paid for the investment and the underlying book value must be analyzed and amortized, if appropriate. The acquisition of the subsidiary is recorded the same way under both methods. If accounted for as securities available for sale, dividends are recorded as revenue by the parent, and the investment is recorded at fair market value at each balance sheet date. 170. In order to use the equity method, Newjohn must be able to exercise significant influence over the affiliated company. If the ownership is less than 20%, then the lack of significant influence would generally be presumed and the equity method would be inappropriate. If Newjohn can control the investee, generally represented by an ownership interest greater than 50%, then consolidation would be appropriate. recording the sale of securities recording interest and dividends; and recording changes in value of the securities; recording the purchase; The four major recording activities are: 171. The three categories listed apply to all investments in debt securities and investments in equity securities with a readily determinable fair value that are not accounted for under the equity method or using consolidation procedures. In other words, equity securities where the investor owns less than 20% of the voting stock are included in one of these three categories. Held to maturity securities must be debt securities. Trading and available for sale securities may be debt or equity securities. Investor is unable to obtain the information necessary to apply the equity method. Majority ownership is concentrated among a small group of investors. Investor tries and fails to obtain representation on the board of investee. Some factors indicating lack of significant influence: Participation in the policy setting process of the company. Material intercompany transactions. Representation on the board of directors. 172. Some factors indicating significant influence: 173. When a firm owns more than 50% of the voting stock in another corporation, then consolidation procedures are required. Owning more than 50% of an investee company ensures, in most cases, that the parent company has control of the management decisions of the subsidiary by holding over half of the votes at stockholder meetings. Control involves the presence of two essential characteristics: (1) ability to guide the subsidiary's ongoing activities and (2) ability to derive benefit from that power. This usually means that the corporation can choose several board members and can control policy making. 174. (1) When it becomes necessary to change to the equity method from another method, the investment account should be retroactively adjusted to the balance that would have existed if the equity method always had been used, and retained earnings would be adjusted for the offsetting effect. (2) When it becomes necessary to change from the equity method to another method, no adjustment is made to the carrying amount of the investment. The equity method is simply discontinued and the new method is applied from then on. The investment account balance when the equity method is discontinued would serve as the new "cost" basis for writing the investment up or down to market value in the next set of financial statements. 175. IFRS require that accounting policies of investees be adjusted to correspond to those of the investor when applying the equity method. U.S. GAAP has no such requirement. Also, IFRS allow investors to account for a joint venture using either the equity method or "proportionate consolidation," whereby the investor combines its proportionate share of the investee's accounts with its own accounts on an item-by-item basis. U.S. GAAP generally requires that the equity method be used to account for joint ventures. 176. When a company elects the fair value option for held-to-maturity or available-for-sale investments, it simply reclassifies those investments as trading securities and accounts for them in that fashion. When a company elects the fair value option for a significant-influence investment that normally would be accounted for under the equity method, that investment is not reclassified as a trading security. Rather, the investment still appears on the balance sheet as a significant-influence investment, but the amount that is accounted for at fair value is indicated on the balance sheet either parenthetically on a single line that includes the total amount of significant-influence investment or on a separate line. As with trading securities, unrealized gains and losses are included in earnings in the period in which they occur. 177. Investments in debt securities are classified as either "Amortized Cost" or FVTPL ("Fair Value through Profit & Loss"). Debt in the amortized cost classification is accounted for at amortized cost, so unrealized gains and losses are not recognized (unless an other-than-temporary impairment is recognized). To be included in the amortized cost category, a debt investment has to meet both (a) the "cash flow characteristics" test (which requires that the debt instrument consist of only principal and interest payments) and (b) the "business model test" (which requires that the objective of the company's business model is to hold the investment to collect the contractual cash flows rather than to sell the investment at a gain). If debt isn't classified in "amortized cost," it is classified in FVTPL, and unrealized gains and losses are recognized as soon as they occur, similar to accounting for trading securities under U.S. GAAP. 178. Investments in equity securities are classified as either "FVTPL" ("Fair Value through Profit & Loss") or "FVTOCI" ("Fair Value through Other Comprehensive Income). If the equity is held for trading, it must be classified as FVTPL, but otherwise the company can irrevocably elect to classify it as FVTOCI. Under FVTPL, unrealized gains and losses are recognized as soon as they occur, similar to accounting for trading securities under U.S. GAAP. Under FVTOCI, unrealized gains and losses are included in OCI, similar to AFS accounting under U.S. GAAP. However, unlike AFS, realized gains and losses are not reclassified out of OCI and into net income when the investment is later sold. Rather, the accumulated gain or loss associated with a sold investment is just transferred from AOCI to retained earnings (both shareholders' equity accounts), without passing through the income statement. ch12 Summary Category # of Questions AACSB: Analytic 73 AACSB: Diversity 16 AACSB: Reflective thinking 105 Blooms: Analysis 16 Blooms: Application 58 Blooms: Comprehension 28 Blooms: Knowledge 71 Blooms: Synthesis 5 Learning Objective: 12-01 Demonstrate how to identify and account for investments classified for reporting purposes as held-to19 maturity. Learning Objective: 1232 02 Demonstrate how to identify and account for investments classified for reporting purposes as trading securities. Learning Objective: 12-03 Demonstrate how to identify and account for investments classified for reporting purposes as available57 for-sale securities. Learning Objective: 128 04 Explain what constitutes significant influence by the investor over the operating and financial policies of the investee. Learning Objective: 12-05 Demonstrate how to identify and account for investments accounted for under the equity method. 26 Learning Objective: 1216 06 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition. Learning Objective: 12-07 Explain how electing the fair value option affects accounting for investments. 8 Learning Objective: 12-08 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments. 17 Learning Objective: Appendix A 1 Learning Objective: Appendix B 16 Learning Objective: derivatives 2 Level of Learning: Easy 37 Level of Learning: Hard 60 Level of Learning: Medium 74 Spiceland - Chapter 12 186

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Community College of Baltimore County - ACCT - 201
ch14Student: _1. 2.The specific provisions of a bond issue are described in a document called a bond indenture. True False Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period. True False The carr
Community College of Baltimore County - ACCT - 201
ch06Student: _1. 2. 3. 4.Compound interest includes interest earned on interest. True False When interest is compounded, the stated rate of interest exceeds the effective rate of interest. True False The calculation of future value requires the removal
Community College of Baltimore County - ACCT - 201
Chapter 13 - Current Liabilities and ContingenciesChapter 13 Current Liabilities and ContingenciesTrue / False Questions1. Some liabilities are not contractual obligations and may not be payable in cash. True False2. Amounts withheld from employees in
Community College of Baltimore County - ACCT - 201
Chapter 20 - Accounting Changes and ErrorsChapter 20 Accounting Changes and ErrorsTrue / False Questions1. Most, but not all, changes in accounting principle are reported using the retrospective approach. True False2. Prior years' financial statements
Community College of Baltimore County - ACCT - 201
Chapter 16 - Accounting for Income TaxesChapter 16 Accounting for Income TaxesTrue / False Questions1. A temporary difference originates in one period and reverses, or turns around, in one or more later periods. True False2. Expenditures currently ded
Community College of Baltimore County - ACCT - 201
Chapter 03 - The Balance Sheet and Financial DisclosuresChapter 03 The Balance Sheet and Financial DisclosuresTrue / False Questions1. The balance sheet reports a company's financial position at a point in time. True False2. A company's market value i
Community College of Baltimore County - ACCT - 201
Chapter 02 - Review of the Accounting ProcessChapter 02 Review of the Accounting ProcessTrue / False Questions1. Owners' equity can be expressed as assets minus liabilities. True False2. Debits increase asset accounts and decrease liability accounts.
Community College of Baltimore County - ACCT - 201
Chapter 01 - Environment and Theoretical Structure of Financial AccountingChapter 01 Environment and Theoretical Structure of Financial AccountingTrue / False Questions1. The primary function of financial accounting is to provide relevant financial inf
Community College of Baltimore County - ACCT - 225
CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS 16-1 Exhibit 16-1 presents many examples of joint products from four different general industries. These include: IndustrySeparable Products at the Splitoff Point Food Processing: Lamb Lamb cuts, t
Community College of Baltimore County - ACCT - 225
CHAPTER 21 CAPITAL BUDGETING AND COST ANALYSIS 21-1 No. Capital budgeting focuses on an individual investment project throughout its life, recognizing the time value of money. The life of a project is often longer than a year. Accrual accounting focuses o
Community College of Baltimore County - ACCT - 225
CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES 15-1 The single-rate (cost-allocation) method makes no distinction between fixed costs and variable costs in the cost pool. It allocates costs in each cost pool to cost objects
Community College of Baltimore County - ACCT - 225
CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS 9-1 No. Differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs. Under variable costing only variable manufacturing costs are inc
Community College of Baltimore County - ACCT - 225
CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS 14-1 Disagree. Cost accounting data plays a key role in many management planning and control decisions. The division president will be able to make better operating a
Community College of Baltimore County - ACCT - 225
CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 a. b. c. d. The budgeting cycle includes the following elements: Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is
Community College of Baltimore County - ACCT - 225
CHAPTER 18 SPOILAGE, REWORK, AND SCRAP 18-1 Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales. 18-2 Spoilageunits of production that do not meet the standards required by customers f
Community College of Baltimore County - ACCT - 225
CHAPTER 12 PRICING DECISIONS AND COST MANAGEMENT 12-1 The three major influences on pricing decisions are 1. Customers 2. Competitors 3. Costs 12-2 Not necessarily. For a one-time-only special order, the relevant costs are only those costs that will chang
Community College of Baltimore County - ACCT - 225
CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL 7-1 Management by exception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps man
Community College of Baltimore County - ACCT - 225
CHAPTER 19 BALANCED SCORECARD: QUALITY, TIME, AND THE THEORY OF CONSTRAINTS 19-1 Quality costs (including the opportunity cost of lost sales because of poor quality) can be as much as 10% to 20% of sales revenues of many organizations. Quality-improvement
Community College of Baltimore County - ACCT - 225
CHAPTER 10 DETERMINING HOW COSTS BEHAVE 10-1 1. 2. The two assumptions are Variations in the level of a single activity (the cost driver) explain the variations in the related total costs. Cost behavior is approximated by a linear cost function within the
Community College of Baltimore County - ACCT - 225
CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND MANAGEMENT CONTROL 8-1 Effective planning of variable overhead costs involves: 1. Planning to undertake only those variable overhead activities that add value for customers using the product or serv
Community College of Baltimore County - ACCT - 225
CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS NOTATION USED IN CHAPTER 3 SOLUTIONS SP: VCU: CMU: FC: TOI: Selling price Variable cost per unit Contribution margin per unit Fixed costs Target operating income3-1 Cost-volume-profit (CVP) analysis examines the beha
Community College of Baltimore County - ACCT - 225
CHAPTER 23 PERFORMANCE MEASUREMENT, COMPENSATION, AND MULTINATIONAL CONSIDERATIONS 23-1 Examples of financial and nonfinancial measures of performance are: Financial: ROI, residual income, economic value added, and return on sales. Nonfinancial: Customer
Community College of Baltimore County - ACCT - 225
CHAPTER 17 PROCESS COSTING 17-1 Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals. 17-2 Pr
Community College of Baltimore County - ACCT - 225
CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2-1 A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, a project, a customer, a brand category, an activity, and a department. 2-2 Dir
Community College of Baltimore County - ACCT - 225
CHAPTER 11 DECISION MAKING AND RELEVANT INFORMATION 11-1 1. 2. 3. 4. 5. The five steps in the decision process outlined in Exhibit 11-1 of the text are Identify the problem and uncertainties Obtain information Make predictions about the future Make decisi
Community College of Baltimore County - ACCT - 225
CHAPTER 4 JOB COSTING 4-1 Cost poola grouping of individual cost items. Cost tracingthe assigning of direct costs to the chosen cost object. Cost allocationthe assigning of indirect costs to the chosen cost object. Cost-allocation basea factor that links
Community College of Baltimore County - ACCT - 225
CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS 20-1 Cost of goods sold (in retail organizations) or direct materials costs (in organizations with a manufacturing function) as a percentage of sales frequently exceeds net inco
Community College of Baltimore County - ACCT - 225
CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT 5-1 Broad averaging (or "peanut-butter costing") describes a costing approach that uses broad averages for assigning (or spreading, as in spreading peanut butter) the cost of resources uniform
Community College of Baltimore County - ACCT - 225
CHAPTER 13 STRATEGY, BALANCED SCORECARD, AND STRATEGIC PROFITABILITY ANALYSIS 13-1 Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. 13-2 The five key forces to cons
Community College of Baltimore County - ACCT - 225
CHAPTER 1 THE ACCOUNTANT'S ROLE IN THE ORGANIZATION See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter. 1-1 Management accounting measures, analyzes and reports financial and nonfin
Community College of Baltimore County - ACCT - 225
CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS 22-1 A management control system is a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organization an
Accreditation Commission for Acupuncture and Oriental Medicine - MEDICINE - 100
16.Embarazo mltiple 17.Cardiopatas y embarazo 18.Colestasia intraheptica del embarazo 19.Infecciones y embarazoBoletn Perinatalndice Captulos20.Neurologa y embarazo 21.Trombofilias y embarazo 22.Muerte fetal in tero1.Presentacin 2.Indicadores en salud
GA Southern - HLTH - 1520
Chapter !2, & 13. CVD FACTS - nearly one million americans dieting each year from coronary heart disease. - approx. 1/2 of these deaths are due to sudden heart attacks. - out of the 1/2 , most die within two hours of the onset symptoms. CVD RISK FACTORS -
SUNY Farmingdale - ACCOUNTING - 202
CONTENTSPreface to the Instructor Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 2
Ventura College - ECON - 101
Quiz #1Attempt 1Written: Jun 23, 2010 12:29 AM - Jun 27, 2010 6:06 PMSubmission View1 / 1 point An increase in efficiency means that an economy has: increased the equity of its distribution of goods and services. increased the incentives for its citiz
Berkeley - CHEMISTRY - 3AL
Lab 8: Identification of an Adulterated Herb or Spice by Thin Layer Chromatography Discussion: 1. On plate 4, we analyzed samples 517, 518, 519, and 520. This TLC plate revealed that 520 (the adulterated compound) had an Rf value similar to one of the spo
Berkeley - CHEMISTRY - 3AL
1 Hardy Lab 9: What do you Take for Pain? Discussion The acid-base chemistry involved in this experiment was between the sodium naproxen in the pill and the sulfuric acid I added to the supernatant after centrifuging the mixture of the Aleve pill in water
UC Irvine - CHEM - 51LB
EXPERIMENT 3 STEREOCHEMISTRY OF BROMINE ADDITION TO TRANS-CINNAMIC ACID REACTION: Bromination of an Alkene TECHNIQUES: Microscale Reflux, Recrystallization In this experiment, we will learn how experimental results can be used to propose a reaction mechan
FAU - PHYS - 2048
Natasha Tavares January 24, 2011 PHY 2048LE xperiment I M ass, Volume and Density January 24, 2011P urpose:1. To become familiar with basic measurement tools such as the veniercaliper, micrometer and weighing balance.2. To learn how to use the concep
FAU - PHYS - 2048
Natasha Tavares January 28, 2011 PHY 2048LExperiment 2 Acceleration due to Gravity January 28, 2011Purpose:1. To measure acceleration of a falling object. Making sure that the onlyforce on the object is the gravitational force. Theory: The density of
FAU - PHYS - 2048
Natasha Tavares February 5, 2011 PHY 2048L 004Experiment 3 Projectile Motion February 5, 2011Purpose:1. To measure and verify the flight range and time of a ball launched atan angle . Theory: Two equations can describe the projectile motion. is the an
Boise State - MRKT - 301
Chapter 2: Marketing PlanningStrategic planning: is the process of determining an organizations primary objectives, allocating funds, and the initiating actions designed to achieve those objectives. It focuses on the big picture of which industries are c
Boise State - MRKT - 301
Chapter 9: Segmentation & Positioning A market consists of people and organizations with the necessary purchasing power, willingness, and authority to buy. Consumer products: are purchased by the ultimate consumer for personal use (magazine, coffee, cell
Boise State - MRKT - 301
C ancer I nformationJohn SmithT able of F iguresC ancer OverviewCancer is one of the scariest words in the English language. When you hear the word as part of a diagnosis, its natural to feel many emotions, especially fear.What is cancer?Cancer is a
Boise State - MRKT - 301
Sports Medicine Clinic 997 Foster Lane, Pittsburgh, PA 15697AddressBlockPlease remember that you have an appointment at the Sports Medicine Clinic on Appt_day, Appt_date, at Appt_time. If you have paperwork to fill out, please arrive at our office 15 mi
Boise State - MRKT - 301
Sports Medicine Clinic 997 Foster Lane, Pittsburgh, PA 15697Dewey Francani800 North StreetPittsburgh, PA 15697Please remember that you have an appointment at the Sports Medicine Clinic on Monday, 9/8/2008, at 8:00:00 AM. If you have paperwork to fill
Boise State - MRKT - 301
Welcome aboard! Thank you for flying Sunset Airlines, the newest airline with destinations to popular vacation spots, such as Las Vegas, Orlando, and Miami. Whether youre flying to Las Vegas to try your luck at the casinos or flying to New York City to se
Boise State - MRKT - 301
to display ourSunset Airlines on-time records. When you get ready to take a trip, you can feel confident that we ll get you there on-time!Lets Go!As Nice as Riding into the SunsetForamoreenjoyableflight,pleasepayspecial attentiontothefollowingregulatio
Boise State - MRKT - 301
From Denver Denver Denver Denver Denver Denver Denver DenverFlight 123 159 324 568 654 668 753 845To % on time Las Vegas 98 Kansas City 97 Orlando 93 Los Angeles 93 New York 97 Miami 94 Chicago 85 Dallas 99Sunset Airlines On-Time Perc105 100 95 90 85
Boise State - ITM - 104
Travel Reimbursement FormFor Authorized ExpensesName: Hong Nguyen Office Phone: (555) 555-0001 Request Date: 3/6/2010Department: Sales-Western Division Purpose of Trip: Departure Date: Client meeting 9/19/2009Return Date: 9/21/2009Transportation:Shu
Boise State - ITM - 104
Travel Reimbursement FormFor Authorized ExpensesName: Click here to enter text. Office Phone: Click here to enter text. Request Date: Click here to enter a date.Department: Click here to enter text. Purpose of Trip: Departure Date: Click here to enter
Boise State - ITM - 104
1.Affectivecomputingiscomputingthat: YourAnswer: attemptstoeliminatethedigitaldivide.CorrectAnswer: relatestoemotionordeliberatelytriestoinfluenceemotion.Refertothesection"Psychology:YouShouldSmile.Now"inChapter1.2.WebsiteslikeAmazon.comsuggestitemsr
Boise State - ITM - 104
1.WhichofthefollowingisNOToneofthefourmajorfunctionsofacomputer? YourAnswer: storedataCorrectAnswer: definedataRefertothesection"ComputersAreDataProcessingDevices"inChapter2.2.Themostcommontypeofsystemsoftwareis YourAnswer: theoperatingsystem.Correc
Boise State - ITM - 104
1.ThetermInternetbackbonerefersto YourAnswer: asetofnumberscomprisinganInternetaddress.CorrectAnswer: themainpathwayusedbyalldatatrafficontheInternet.Refertothesection"TheInternet'sClientsandServers"inChapter3.2.A_isaclipofaudioorvideocontentthatisbr
Boise State - ITM - 104
1._,thewordprocessingprogramintheOpenOfficeSuite,hasmanyofthesametoolsyou'reusedto seeinginMicrosoftWord. YourAnswer: WriterCorrect.WriteristhewordprocessingsoftwareintheOpenOfficeSuite.2.Whichtypeofsoftwareusescells,rows,andcolumnstoinputdata? YourAn
Boise State - FIN - 304
Name: Hannah (Hong) Nguyen Section: Finan 304 - 001MicronTechnology INCPROJECT NPV(in thousands of $) Year 0 Year 1 2000 2.00% 11.00% 35.00% Year 2 4000 2.50% 11.20% 35.00% Year 3 5600 3.00% 11.40% 35.00%Key AssumptionsUnit Sales Inflation Rate Real
Boise State - FIN - 304
Name: Hannah (Hong) Nguyen Section: Finan 304 - 001 Using an IF Statement determine the SUM of Column 1 and Column 2 for each row. If the SUM is greater than 10 then display the SUM of Column 1 and Column 2 for each row. If the SUM is less than 10 then di
Boise State - FIN - 304
Using an IF Statement determine which column has a larger # for each row. Column 1 Column 2 If Statement 2 5 Column 2 4 3 Column 1 6 6 Column 2 8 2 Column 1 10 3 Column 1 12 7 Column 1 14 15 Column 2 16 12 Column 1 18 19 Column 2Using an IF statement det
Boise State - FIN - 304
This Quiz has 2 parts. The first is to complete a data table using the information provided on the next worksheet. The second part is to work up 3 pivot tables based on the instructions on the Pivot table problem worksheet, using the data from the Pivot t
Boise State - FIN - 304
Part 11. On the sheet tab labeled Data, complete the 4 required parts of the forecasting model a. Scatter Chart b. Label the trend components as per the Powerpoint slideshow c. Find the trend line equation d. Forecast the sales for 2008 Points Scatter Ch
Boise State - FIN - 304
Company XYZ, Inc.Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Period 1 2 3 4 5 6 7 8 9 10 11 Sales $9,500 $10,000 $11,000 $10,250 $10,000 $10,750 $11,500 $12,300 $12,000 $11,750$14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 0 2 4