If the proceeds from the sale of bonds held as a long-term investment exceed the carrying amount of the bonds, a gain is realized.
The fair market value of bond investments should be disclosed, either on the face of the financial statements or in an accompanying note.
Investments in bonds that management intends to hold to maturity are called held-to-maturity securities.
Although marketable securities may be retained for several years, the continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.
Ordinarily, a corporation owning a significant protion of the voting stock of another corporation accounts for the investment using the equity method.
The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.
It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.
the interest expense is deductible for tax purpose by the corporation
One potential advantage of financing corporations through the use of bonds rather than common stock is
On June 1st, $400,000 of bonds were purchased as a long-term investment as 97.5 and $500 was paid as the brokerage commission. If the bonds bear interest at 12%, which is paid semiannualy on Jan 1st and July 1st. what is the total cost to be debited to the investment account?
requires the investment to be reported at its market value
The cost method of accounting for investments
An investor purchased 500 shares of common stock, $25 par for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the ammount of gain or loss on the sale"
Investment in Vallerio
Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to cash and a credit to
The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the
the investment plus Wedell's share of Porter net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased
Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of
debit Investment in Worton Corporation Stock
credit Income of Worton Corporation
Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investmen. Subsequently, Worton Corporation reporten net income and delcared and paid cash dividends. What journal entry would Blanton Corporation use to record its ahre of the earnings?
debit to loss
credit to the investment account for 20,000
Sach company owns 40% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a 20,000 net loss. this entry would be...
Parker company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the
Gale company owns 87% of the outstanding stock of Leonardo Company. Leonardo company is referred to as the
the extent of an investor's influence over the operating and finacial affairs of the investee
For accountin purposes, the methos used to account for investments in common stock is determined by
The statement of cash flows reports a firm's major source of cash receips and major uses of cash payments for a period.
Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends.
Cash flows from investing activities, as part of the statement of cash flows, include payments for the purchase of treasury stock.
There are two alternatives to reporting cash flows from operating activities in the statement of cash flows 1 the direct method 2. the indirect method
the cash flows from investing activities section
Cash paid to purchase long-term investments would be reported in the statement of cash flows in
Cash paid for perferred stock dividends should be shown on the statement of cash flows under
cash at end of year
The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports
the cash flows from operating activities section
Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in
The relationship of each asset item as a percent of total assets is an example of vertical analysis
Vertical analysis refers to comparing the financial statements of a single company for several years
solvency and profitability
the ability of a business to pay its debts as they come due and earn a reasonable amount of income is referred to as
1.generate cash from operations
2. maintain and expand its operating capacity
3. meet its financial obligations
4. pay dividends
statement of cash flows provides
cash flows from operating activities
ex. purchase and sale of merchandise by a retailer
cash flows from tansactions that affect net income of the company
cash flows from investing activities
ex. purchase and sale fo fixed assets, such as equipment and buildings
cash flows from transactions that affect investments in the noncurrent assets of the company
cash flows from financing activities
ex. issuing or retiring equity and debt securities
cash flows from transactions that affect the dept and equity of the company
percentage analysis of increases and decreases in related items in comparative financial statements
percentage analysis of the relationship of each compnent in a finacial statement to a total withing the statement
a ratio that measures the instant debt-paying ability of a company. sometimes called the acid-test ratio
quick assets/current liabilites
earneings per share
measures the share of profits that are earned by a share of common strock. must be reported in the income statement
net income-preferred dividends/shares of common stock outstanding