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ACCT 387 Study Guide - Midterm Guide: Accounts Receivable, Deferral, Deferred Tax

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School
Iowa State University
Department
Accounting
Course
ACCT 387
Professor
Lamboy Ruiz Melvin

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Document Summary

If a corporation accounts for a debt security by recognizing unrealized holding gains and losses as other comprehensive income and as a separate component of stockholders" equity, they are likely. 2016, partin enterprises decreased the debt investments account for the nemeth bonds by the amortized premiums of and , respectively. On january 1, 2016, partin enterprises purchased ,000 of 8%, 5-year bonds from nemeth. Industries for ,158, giving an effective interest rate of 7%. Interest on the bonds is payable on july 1 and january 1, and they use the effective interest method to amortize the bond premium. At the time, the carrying value of the bonds was ,375. Almonte nuts purchased ,000 in 8%, 10-year term bonds for ,212 for an effective interest rate of 7%. An investor who has purchased 20% to 50% of the investee"s common stocks will likely have. The company will report a varying amount of interest income from period to period.

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Related Questions

Which of the following has no effecton comprehensive income?

Unrealized gains and losses on held-to-maturity investments

Unrealized gains and losses on available-for-saleinvestments

Unrealized gains and losses on trading securities

Realized gains and losses on available-for-sale securities thatwere held in previous periods

1. Sork Inc. has a portfolio of marketable securities classified as available-for-sale securities. At the end of the year, the fair values of the securities exceeded their costs. How should Sork report the unrealized gains on its portfolio of marketable securities in the statement of stockholders’ equity?

I. Only the cumulative amount of net gains are reported in the statement of stockholders’ equity.

II. Only current period changes in the value of the investment are reported in the statement of stockholders’ equity.

III. A correct journal entry to report unrealized gains would be an increase to the investment and an increase to other comprehensive income.

Multiple Choice

a. I and III only

b. II and III only

c. I only

d. III only

2. During 20X9, Alpha Co. purchased debt securities classified as trading securities. At the end of 20X9, the market value of Alpha’s investment in debt securities exceeded the amortized cost. Alpha should report the debt securities on its 20X9 balance sheet at

Multiple Choice

a. Amortized cost

b. Market value

c. Cost

d. Lower of cost or market

3. Misk Co. purchased the following securities during 20X7 to be classified as held-to-maturity securities, trading securities, or available-for-sale securities:

I. Debt securities bought and held for the purposes of reselling in the near future.

II. U.S. Treasury bonds that Misk intends and is able to hold to maturity.

III. Convertible preferred stock that Misk does not intend to sell in the near future.

Which of above securities purchased by Misk should be classified as available-for-sale securities?

Multiple Choice

a. I and II only

b. I and III only

c. III only

d. None of the above

4. Data regarding Rock Corp.’s available-for-sale securities follows:

Cost Market Value
December 31, 20X7 $ 80,000 $ 65,000
December 31, 20X8 $ 80,000 $ 90,000


Differences between cost and market values are considered temporary. Rock does not elect the fair value option of accounting for available-for-sale securities.

Rock’s accumulated other comprehensive income would be

Multiple Choice

a. $0

b. $10,000

c. $25,000

d. $15,000

Held-to-Maturity Securities and Amortization of a Discount

On January 1, 2013, Kelly Corporation acquired bonds with a facevalue of $500,000 for $483,841.79, a price that yields a 10%effective annual interest rate. The bonds carry a 9% stated rate ofinterest, pay interest semiannually on June 30 and December 31, aredue December 31, 2016, and are being held to maturity.

Prepare journal entries to record the purchase of the bonds andthe first two interest receipts using the straight-line method ofamortization. If required, round your answers to the nearest cent.For compound entries, if an amount box does not require an entry,leave it blank.

2013 investment in held-to-maturity debt securities $?????
Jan 1 cash $?????
June 30 cash $?????
investment in held-to-maturity debt securities $?????
interest income $?????
Dec 31 cash $?????
investment in held-to-maturity debt securities $?????
interest income $?????

Prepare journal entries to record the purchase of the bonds andthe first two interest receipts using the effective interest methodof amortization. If required, round your answers to the nearestcent. For compound entries, if an amount box does not require anentry, leave it blank.

2013 investment in held-to-maturity debt securities $?????
Jan 1 cash $?????
June 30 cash $?????
investment in held-to-maturity debt securities $?????
interest income $?????
Dec 31 cash $?????
investment in held-to-maturity debt securities $?????
interest income $?????