Chapter 12: Reporting and Interpreting Investments in ...



Chapter 12: Reporting and Interpreting Investments in Other Corporations

Securities Held for Passive Investment

1. When is an investment considered a passive investment?

2. What is the market value method?

3. What are the two reasons that passive investments are the only assets that are reported at fair market value on the balance sheet?

4. When are unrealized holding gains and losses recorded?

5. What are the two types of passive investments?

6. What are trading securities?

7. What are available for sale securities?

8. How are passive investments initially recorded?

9. How is the receipt of dividends recorded for a passive investment?

10. How is the year-end valuation adjustment for passive investments recorded?

11. How are unrealized holding gains and losses reported for available for sale securities?

12. How are unrealized holding gains and losses reported for trading securities?

13. What balance sheet accounts are affected when securities available for sale are sold?

14. What balance sheet accounts are affected when trading securities are sold?

15. On July 1, 2002, Snowball Company purchased 6,000 shares of the preferred stock of Cianci Company for $30 per share (24,000 shares outstanding). The preferred stocks were designated as available for sale. Only common shareholders of Cianci Company can vote at shareholder meetings. The records of Cianci Company reflect the following on December 21, 2002

Net Income $60,000

Dividends declared and paid during December 2002 6,500

Market price per share, December 31, 2002 27

What is the amount that Snowball Company will report on their balance sheet for its investment in Cianci Company on December 31, 2002?

16. On January 1, 2002, Abuzzena Company acquired 15% of the outstanding voting stock of George Company as a long-term investment in available for sale securities. On December 31, 2002, George Company reported net income of $400,000 and dividends declared and paid of $10,000. For 2002, what amount should Abuzzena Company report for Revenue from long-term investments?

17. On July 1, 2000, Bush Company purchased long-term investments in available for sale securities as follows:

Democratic Corporation common stock (par $5) 2,000 shares at $16 per share.

Republican Company preferred stock (par $20) 1,500 shares at $30 per share

The quoted market price per share on December 31, 2000 were:

Democratic Corporation stock, $15 per share

Republican Company stock, $30 per share

Each of the long-term investments represents 10% of the total shares outstanding. For the year ended 2000, the Democratic Corporation’s net income is $100,000 and paid dividends of $20,000. For the year ended 2000, the Republican Company’s net income is $10,000 and paid dividends of $5,000. What is the combined carrying value of the long-term investments reported in the balance sheet at December 31, 2000?

Securities Held for Significant Influence

1. What percentage of investment is needed to qualify as an investment held for significant influence?

2. What method is used to account for investments held for significant influence?

3. How is an investment held for significant influence initially recorded?

4. How are dividends recorded under the equity method?

5. How is the year-end income of the investee recorded under the equity method?

6. Are securities held for significant influence adjusted at the end of the year for the change in market value?

7. Kuffor Company purchased 6,000 of the 15,000 shares of common stock of Asamoah Corporation on January 1, 2002, at $30 per share as a long-term investment. The records of Asamoah Corporation showed the following on December 31, 2002:

Net Income $80,000

Dividends declared and paid during 2002 15,000

Market price per share on December 31, 2002 33

What should Kuffor Company report as their investment in Asamoah on December 31, 2002?

8. On January 1, 2000, Gary, Inc. bought 40,000 (40%) of the outstanding share of Laura Corporation at a cost of $400,000. The equity method of accounting for this investment is used. At the end of 2000, Laura Corporation reported a net loss of ($250,000) and paid a total of $100,000 cash dividends. At the end of 2000, the shares of Laura Corporation were trading at $12 per share. What amount should this investment be reported on the balance sheet of Gary, Inc. on December 31, 2000?

Securities Held for Control

1. What percentage investment is required for securities held for control?

2. What is a parent company?

3. What is a subsidiary?

4. What are consolidated financial statements?

5. What are the two methods of acquiring a controlling interest?

6. What is a pooling of interests?

7. What is a purchase?

8. What is goodwill?

9. During 2001, Parnell Corporation purchased 100% of the outstanding voting shares of Jackson Corporation for $750,000. Jackson’s net assets had a book value of $730,000 and a market value of $735,000. What is the amount of goodwill that should be recognized on the purchase?

Return on Assets

1. What is the equation for ROA?

2. What does ROA measure?

3. What does a high ROA ratio indicate?

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download