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ACCT 302 Study Guide - Midterm Guide: Accounts Payable, Current Liability, Equity Method

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School
Old Dominion University
Department
Accounting
Course
ACCT 302
Professor
Rogers, Genese

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Document Summary

Trading securities and available for sale securities are reported at fair value. We report the amortized cost on the balance sheet for held to maturity securities. In htm and afs is the investment declines below the amortized cost of the investment then it is ott. Whether the company had the intent and ability to hold the investment until fair value recovers: know how cash dividends are classified when the investor classifies the investment in common stock as securities available for sale. Cash dividends are classified as dividend income when the investor classifies the investment in common stock as securities available for sale: know the methods of accounting used based on an investors influence. Lack of significant influence (usually < 20% equity ownership): varies by type of investment (htm, ts, afs) Significant influence (between 20%-50% equity ownership) equity method. Has control (usually >50% equity ownership) consolidation: know when short term obligations can be classified as long term obligations.

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Related Questions

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

BCS has provided the auditor with the following informationregarding their investment accounts: At 12/31/2011, Tradingsecurities $400,000, Available-for-Sale Securities $500,000,Held-to-Maturity Securities $1,500,000. At 12/31/2012, TradingSecurities $600,000, Available-for-Sale Securities $350,000,Held-to-Maturity Securities $2,000,000. Additional information: Themarket value of the trading securities was $450,000 on December 31,2011 and $475,000 on December 31, 2012; the market value of theavailable for sale securities was $600,000 on December 31, 2011 and$250,000 on December 31, 2012.


a. What is the proper valuation for the trading andavailable-for-sale securities on 12/31/11 and 12/31/12? (What valuewill appear on the balance sheet for these securities?)
b. The trading securities held by the company at the end of 2011were sold in 2012 for $450,000. What was the gain or lossrecognized on the sale? Prepare the journal entry to record thesale.
c. What is the impact on the income statement in 2011 and 2012 ofholding these investment securities (show your calculation).
d. How would you audit the balance in the held-to-maturitysecurities at the end of 2012? What is the appropriate valuationbase for these securities?
e. What is the impact of the held-to-maturity securities on theincome statement for 2012?

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