Exam 1 ACC 311

Unrealized holding gains or losses that are recognized in the comprehensive income statement are from securities classified as

1. held to maturity

2. available for sale

3. trading

4. all of the above

5. b and c only

two and three only (available for sale and trading)

On its December 31, 2022 balance sheet, Visa Co reported its invesmtnet in available for sale securities, which had cost 600,000 at a fair value of 550000. At december 31, 2023 fair value of the securities had increased to 585000. Assuming no securities were sold what should ruth record as a result of the change in fair value of the investments in 2023?

1. 0

2. unrealized loss of 15000

3. realized gain of 35000

4. unrealized gain of 35000

unrealized gain of 35000 (it is before selling so unrealized and 585000-550000)

Watts corp began operations in 2022. An analysis of Watts marketable debt securities portfolio shows the following totals at December 31, 2022 for trading and available for sale securities:

Trading: Cost 54000, Fair Value 57000

Available for sale: Cost 65000, Fair value 59000

What amount should Watts report in its 2022 income statement for unrealized holding gain/loss?

1. 9000 loss

2. 3000 loss

3. 3000 gain

4. 6000 loss

Total cost: 119000, total fair value: 116000, 3000 gain

Webster Corporation acquired 25% of the outstanding common stock of Digest Inc on Jan 1 2022. The purchase price was 2300000 for 60000 shares. Digest declared and paid a $1.10 per share cash divident on June 30 2022. The fair market value of the Digest stock at the end of 2022 is 42 per share. Webster can not exert significant influence over Digest and accounts for the invesmtnet as an equity investment. This is websters only equity invesment.

At december 31 2022 the investment asset will be reported on websters balance sheet at what amount?

1. 2300000

2. 2484000

3. 2520000

4. 2434000

2520000 (fair market value 42 × 60000 shares)

Which of the following is not one of the factors affecting the proper accounting method to use for investments

1. intentions of management

2. ownership percentage represented by the stock investment

3. cash flow preferences of management

4. marketability of the investment

cash flow preferences of management

Which of the following has no effect on comprehensive income?

1. unrealized gains and losses on trading securities

2. realized gains and losses on available for sale securities that were sold in the current period

3. unrealized gains and losses on available for sale investments

4. unrealized gains and losses on held to maturity investments

unrealized gains and losses on held to maturity investments

For which of the following securities should unrealized gains be included in Other Comprehensive Income

1. trading securities

2. available for sale securities

3. held to maturity securities

4. marketable securities

available for sale securities

When a company owns between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

1. the investor should always use the equity method to account for its investment

1. the investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise “significant influence” over the investee

2. the investor must use the fair value method unless it can clearly demonstrate the ability to exercise “significant influence” over the investee

3. the investor should always use the fair value method to account for its investment.

the investor should use the equity method to account for its investment unless circumstances indicate that is is unable to exercise “significant influence” over the investee

On its December 31, 2019 balance sheet, Oak Co. reported its investment in available for sale securities (cost 700000) at a fair value of 670000. Oak determines that the decline in fair value is not the result of a credit impairment. At December 31 2020 the fair value of the securities was 705000. if this is the compnays only AFS investment what is the AOCI balance with respect to the AFS invesmtent at 12/31/2020?

1. 0

2. 5000 debit

3. 5000 credit

4. 35000 debit

5. 35000 credit

5000 credit

An advantage of issuing long term debt instead of stock would be to

1. decrease default risk

2. increase leverage

3. increase the debt-to-equity ratio

4. increase control of the company

incrase leverage

Vendor X sells a high-end furniture set to Customer Y in exhance gro a three year note receivable bearning no interst rate. Although prevailing market rates show that an appropriate interest rate for the transaction is 5 percent, the parties agree that a more reasonable rate for this specific transaction is 6 percent. Relative to a 5 percent interest rate, the 6 percent implied rate will result in

1. a decrease in the initial notes receivable asset

2. a decrease in annual interest income

3. an increase in the annual amortization of the discount on notes recievable

4. an increase in sales booked

an increase in the annual amortization of the disocunt on notes recivable

Clothes Horse Corp issued 500000 bonds due in 10 years on Jan 1 year 1 at a premium for 567105. On jan 1 year 6 when the carrying value of the bond was 539940 CHC redemeed the bodns at 102. What amount of gain should CHC record realated to the redemption?

1. 0

2. 29940

3. 39940

4. 10000

29940 because 500000 × 1.02 = 510000, 539940-510000

On December 30 year 1 wayne corporation issued 1000 of its 8%, 10 year 1000 face value bonds with detachable stock warrants at par. Each bond carried a detachable warrant for one share of Waynes common stock at a specififed option price of 25 per share. Immeddiately after issuance,the market value of the bonds without the warrants was 1080000 and the. market value of the warrants was 120000

In its December 31, year 1 balance sheet, what amount should wayne report as bonds payable

1. 1080000

2. 1200000

3. 900000

4. 1000000

900000 because 1080000+120000 = 1200000 then 1080000/120000 = 90% and then 1000000× 90% = 900000

On December 31 year 1 Dare corporation had outstanding 8%, 2000000 face value convertibl bonds maturing on december 31 year 5. Interest is payable annually on December 31. Each 1000 bond is convertible into 60 shares of Dares 10 par value common stock. On jan 2 year 3, whent he premium on bonds payble account balance was 45000, an individual holding 200 of the bonds exercised the conversion privilege when the market value of Dares commmon stock was 18 per share. Using the book value method, Dares entry to record the conversion should include a credit to addtional paid in capital of:

1. 84500

2. 80000

3. 96000

4. 125000

84500

On July 1 year 1 Rix Corporation had 10000000 of 9% bonds outstanding. The maturity date is June 30 year 6.Interest is paid semi annually every une 30 and december 31. All the bonds were redeemedon July 1, year 1 at 98. At the time of the bond redemption, there was unamorized bond premium of 60000 and unamortized debt issuance costs of 100000. What is the amount of the gain on the bond redemption?

1. 80000 gain

2. 160000 gain

3. 240000 gain

4. 0

160000 gain because 1000000×98% = 9800000 is the redemption price. Carrying value is 10000000 + 60000 unamortized premium -100000 unamortized debt issuance which is 9960000 -9800000 = 160000 gain

On Jan 1 year 1, Onslow company borrowed 360000 from a major customer evidenced by a non interst bearing note due in 3 years. Onslow agreed to supply the customers inventory needs for the loan period at a lower than market price. At the 12% imputed interest rate for this type of loan, the present value of the note is 255000 at Jan 1 year 1. What amoutn of interest expense should be included in onslows year 1 income statement?

1. 43200

2. 35000

3. 30600

4. 0

30600 because 255000 × 12% is 30600