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Which method is used when one company owns less than 20% of the shares of another company

Which method is used when one company owns less than 20% of the shares of another company?

A) consolidation method

B) fair value method

C) equity method

D) amortized cost

42) On January 1, 2014, Imagine Corporation purchases bonds in Berkeley Company. The bonds mature on January 1, 2024. Imagine Corporation intends to hold the bonds longer than one year but not until the maturity date. How should Imagine Corporation classify these bonds?

A) trading security

B) held-to-maturity investment in bonds

C) equity method investment

D) investment in available-for-sale securities

 

43) On January 1, 2014, Jude Corporation purchases stock in Gelco Company. Jude Corporation owns 1% of the outstanding stock of Gelco Company. Jude Corporation intends to hold the stock for longer than one year. How should Jude Corporation classify this stock?

A) trading security

B) held-to-maturity investment in bonds

C) equity-method investment

D) investment in available-for-sale securities

 

44) Long-term available-for-sale securities can be:

A) bonds held to maturity.

B) bonds not held to maturity, but held for more than one year.

C) stocks other than trading securities and equity-method securities.

D) B and C.

 

45) The Allowance to Adjust Investment in Available-for-Sale Securities to Market is:

A) a required account used with Investment in Available-for-Sale Securities.

B) an optional account to Investment in Available-for-Sale Securities.

C) always added to the Investment in Available-for-Sale Securities.

D) always subtracted from the Investment in Available-for-Sale Securities.

46) U.S. Generally Accepted Accounting Principles require that a company adjust ________ of available-for-sale securities to ________ at the end of each accounting period.

A) each security; amortized cost

B) each security; lower of cost or market

C) the portfolio; current replacement cost

D) the portfolio; fair value

 

47) Following U.S. Generally Accepted Accounting Principles, the fair value of a stock investment should be determined using ________. Assume the stock is listed on a publicly-traded securities exchange.

A) quoted prices in active markets for identical stocks

B) quoted prices for similar stocks

C) the investor's own estimates based on certain assumptions

D) the investor's educated guesses

 

48) A company has a long-term Investment in Available-for-Sale Securities. The intent is to hold the stock investment for many years, but not until maturity. The investor's percentage ownership is 5%. On January 1, 2014, the purchase date, the cost of the stock investment was $100,000. On December 31, 2014, the fair value of the investment is $99,000. An allowance account is used to write-down the investment. On January 10, 2015, the investor sold the stock for $95,000. What journal entries are required on January 10, 2015?

A) debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for $1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000

B) debit Cash for $95,000, debit Loss on Sale of Investment in Available-for-Sale Securities for $5,000 and credit Investment in Available-for-Sale Securities for $100,000

C) debit Cash for $95,000, debit Loss on Sale of Investment of Available-for-Sale Securities for $4,000 and credit Investment in Available-for-Sale Securities for $99,000

D) A and B

49) A company has a long-term investment in available-for-sale securities. The Unrealized Gain on (long-term) Investment in Available-for-Sale Securities is reported as:

A) Other Comprehensive Income in the Statement of Comprehensive Income.

B) Other Gains on the income statement.

C) Accumulated Other Comprehensive Income on the balance sheet.

D) A and C.

 

50) On January 1, 2014, a company purchased long-term available-for-sale securities in one company. The cost was $100,000 and the investor owns 5% of the outstanding common stock of the investee. The investor does not use an allowance account to adjust the investment. At December 31, 2014, the fair value of the investment is $97,000. What journal entry is needed on December 31, 2014?

A) debit Unrealized Loss on Investment in Available-for-Sale Securities for $3,000 and credit Investment in Available-for-Sale Securities for $3,000

B) debit Investment in Available-for-Sale Securities for $2,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $2,000

C) debit Investment in Available-for-Sale Securities for $5,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $5,000

D) debit Investment in Available-for-Sale Securities for $3,000 and credit Unrealized Gain on Investment in Available-for-Sale Securities for $3,000

 

51) On January 1, 2014, Innocente Company purchases 1,000 shares of Intel common stock at $40 per share. Innocente intends to hold this investment for longer than one year. On June 1, 2014, Intel declares and distributes a cash dividend of $0.50 per share. On December 31, 2014, the market price of Intel's stock is $44 per share. On December 31, 2015, the market price of Intel's stock is $56 per share. On December 31, 2016, the market price of Intel's stock is $50 per share. Innocente Company uses a separate Allowance account to adjust the investment.

 

Prepare the journal entries on:

1. January 1, 2014

2. June 1, 2014

3. December 31, 2014

4. December 31, 2015

5. December 31, 2016

Explanations are not required.

Dec 19 2019 View more View Less

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