ACCT 5315 Module 9

Which of the following statements does not accurately describe the fair-value method of accounting?

Investments for which current, reliable fair values exist are accounted for using this method.

When the fair value of a company’s portfolio of passive investments in marketable equity securities exceeds its book value, the difference should be:

Added to the investment account

In its year end financial statements, Big Bank Corporation reports marketable debt securities of $221,919 million. The footnotes disclose that these securities have an amortized cost of $223,446 million.

 Which of the following is true?

• There are net unrealized losses of $1,527 million on these securities.

• These are available-for-sale securities.

GAAP identifies several levels of influence/control. If Company One owns 10% of the outstanding voting stock of Company Two, which level of influence/control is in evidence?

Passive

Frankfort Corporation purchases an investment in Bradley, Inc. at a purchase price of $9.8 million cash, representing 40% (at book value) of Bradley. During the year, Bradley reports net income of $1,680,000 and pays $413,000 of cash dividends. At the end of the year, the market value of Frankfort’s investment is $11.9 million.

What amount of equity earnings would be reported by Frankfort Corporation?

$672,000

Indianapolis Corporation makes an equity-method investment in Richmond Inc. at a purchase price of $4.42 million cash, representing 30% (at book value) of Richmond Inc. During the year, Richmond reports net income of $5,280,500 and Indianapolis receives $877,500 of cash dividends from Richmond. At the end of the year, the market value of Indianapolis’s investment is $4.03 million.

At year end, what does Indianapolis Corporation report on its balance sheet for its investment in Richmond Inc.?

$5,126,650

Significant influence is often presumed when the investor owns:

Between 20% and 50% of the voting stock of the investee

Which of the following would not be considered an intangible asset?

Plant, Property, and Equipment

When debt securities are classified as held-to-maturity, fair-value changes are recognized in the balance sheet as unrealized gains or losses that affect owners’ equity.

False