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17-16TestBankforIntermed;Usethefollowinginformati;PattonCompanypurchased$6;72.OnJuly1,2013,PattonCo;ScottCo.bondsbya.$3,588.;73.FortheyearendedDecemb;fromtheScottCo.bondsof:a;Useth


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17 - 16 Test Bank for Intermediate Accounting, Fourteenth Edition

Use the following information for questions 72 and 73.

Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. The discount of $35,850 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity.

72. On July 1, 2013, Patton Company should increase its Debt Investments account for the

Scott Co. bonds by a. $3,588. b. $2,056. c. $1,794. d. $1,028.

73. For the year ended December 31, 2013, Patton Company should report interest revenue

from the Scott Co. bonds of: a. $63,588. b. $62,113. c. $62,052. d. $60,000.

Use the following information for questions 74 and 75.

Landis Co. purchased $1,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2012, with interest payable on July 1 and January 1. The bonds sold for $1,041,580 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2012 and December 31, 2012 by the amortized premiums of $3,540 and $3,660, respectively.

74. At December 31, 2012, the fair value of the Ritter, Inc. bonds was $1,060,000. What

should Landis Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $25,620. b. $18,420. c. $7,200.

d. No entry should be made.

75. At April 1, 2013, Landis Co. sold the Ritter bonds for $1,030,000. After accruing for

interest, the carrying value of the Ritter bonds on April 1, 2013 was $1,033,750. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds? a. ($29,370). b. ($21,870). c. ($3,750). d. $ 0.

Investments 17 - 17

76.

On August 1, 2012, Fowler Company acquired $600,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2012, and mature on April 30, 2017, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2012?

a. Debt Investments ................................................................ 624,000 Interest Revenue ................................................................ 15,000 Cash ....................................................................... 639,000 b. c.

Debt Investments ................................................................ Cash ....................................................................... Debt Investments ................................................................ Interest Revenue ..................................................... Cash .......................................................................

639,000

639,000

600,000 39,000

639,000 15,000 624,000

77.

d. Debt Investments ................................................................ Premium on Bonds ............................................................. Cash .......................................................................

639,000

On October 1, 2012, Renfro Co. purchased to hold to maturity, 2,000, $1,000, 9% bonds for $1,980,000 which includes $30,000 accrued interest. The bonds, which mature on February 1, 2021, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2012 balance sheet at a carrying value of a. $1,950,000. b. $1,951,500. c. $1,980,000. d. $1,980,500.

On November 1, 2012, Howell Company purchased 900 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $948,000, which includes accrued interest of $13,500. The bonds, which mature on January 1, 2017, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2012, balance sheet at a. $900,000. b. $934,500. c. $933,120. d. $948,000.

On November 1, 2012, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $500,000, for $450,000. An additional $15,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2019. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2012 income statement as a result of Horton's available-for-sale investment in Lopez was a. $8,750. b. $8,333. c. $7,500. d. $6,666.

78.

79.

17 - 18 Test Bank for Intermediate Accounting, Fourteenth Edition

80. On October 1, 2012, Menke Co. purchased to hold to maturity, 500, $1,000, 9% bonds for

$520,000. An additional $15,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2016. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2012 income statement from this investment should be a. $11,250. b. $10,050. c. $12,450. d. $13,650.

81. During 2010, Hauke Co. purchased 3,000, $1,000, 9% bonds. The carrying value of the

bonds at December 31, 2012 was $2,940,000. The bonds mature on March 1, 2017, and pay interest on March 1 and September 1. Hauke sells 1,500 bonds on September 1, 2014, for $1,482,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is a. $0. b. $7,200. c. $12,000. d. $16,800.

On January 3, 2012, Moss Co. acquires $400,000 of Adam Company’s 10-year, 10% bonds at a price of $425,672 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity.

82. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest

revenue that would be recognized in 2013 related to these bonds? a. $40,000 b. $42,568 c. $38,312 *d. $38,160

83. Assuming that Moss Co. uses the straight-line method, what is the amount of premium

amortization that would be recognized in 2014 related to these bonds? a. $2,568 b. $1,688 c. $1,840 d. $2,008

Questions 84 and 85 are based on the following information:

Richman Co. purchased $600,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2012, with interest payable on July 1 and January 1. The bonds sold for $624,948 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2012 and December 31, 2012 by the amortized premiums of $2,124 and $2,196, respectively.

Investments 17 - 19

84.

At December 31, 2012, the fair value of the Carlin, Inc. bonds was $636,000. What should Richman Co. report as other comprehensive income and as a separate component of stockholders’ equity? a. $0 b. $4,320 c. $11,052 d. $15,372

At February 1, 2013, Richman Co. sold the Carlin bonds for $618,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2013 was $620,250.

Assuming Richman Co. has a portfolio of available-for-sale debt investments, what should Richman Co. report as a gain (or loss) on the bonds? a. $0.

b. ($2,250). c. ($13,122). d. ($17,622).

During 2012 Logic Company purchased 6,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 1,500 shares of Midi, Inc. for $35 per share. At December 31, 2012 the market price of Midi, Inc.’s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2012 related to its investment in Midi, Inc. stock? a. ($12,000) b. $7,500 c. ($4,500) d. ($1,500)

85.

86.

Instrument Corp. has the following investments which were held throughout 2012–2013: Trading $450,000 $600,000 $570,000 Available-for-sale 450,000 480,000 540,000

87. What amount of gain or loss would Instrument Corp. report in its income statement for the

year ended December 31, 2013 related to its investments? a. $30,000 gain. b. $30,000 loss. c. $210,000 gain. d. $120,000 gain.

88. What amount would be reported as accumulated other comprehensive income related to

investments in Instrument Corp.’s balance sheet at December 31, 2012? a. $60,000 gain. b. $90,000 gain. c. $30,000 gain. d. $180,000 gain.

17 - 20 Test Bank for Intermediate Accounting, Fourteenth Edition

89. At December 31, 2013, Atlanta Co. has a stock portfolio valued at $120,000. Its cost was

$99,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $6,000, which of the following journal entries is required at December 31, 2013? a. Fair Value Adjustment 21,000

(available-for-sale)

Unrealized Holding Gain or Loss-Equity 21,000

b. Fair Value Adjustment 15,000

(available-for-sale)

Unrealized Holding Gain or Loss-Equity 15,000

c. Unrealized Holding Gain or Loss-Equity 21,000

Fair Value Adjustment 21,000 (available-for-sale)

d. Unrealized Holding Gain or Loss-Equity 15,000

Fair Value Adjustment 15,000 (available-for-sale)

90. Kramer Company's trading securities portfolio which is appropriately included in current

assets is as follows: Fair Unrealized Catlett Corp. $250,000 $205,000 $(45,000) Lyman, Inc. Ignoring income taxes, what amount should be reported as a charge against income in

Kramer's 2012 income statement if 2012 is Kramer's first year of operation? a. $0.

b. $20,000. c. $25,000. d. $45,000.

91.

On its December 31, 2012, balance sheet, Trump Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2013, the fair value of the securities was $585,000. What should Trump report on its 2013 income statement as a result of the increase in fair value of the investments in 2013? a. $0.

b. Unrealized loss of $15,000. c. Realized gain of $35,000. d. Unrealized gain of $35,000.

92. During 2012, Woods Company purchased 40,000 shares of Holmes Corp. common stock

for $630,000 as an available-for-sale investment. The fair value of these shares was $600,000 at December 31, 2012. Woods sold all of the Holmes stock for $17 per share on December 3, 2013, incurring $28,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2013 of a. $22,000. b. $50,000. c. $52,000. d. $80,000.

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