Short Term Investment Paper 2

1

When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year, given no election of the fair value option?
Debt Securities Classified As
Held-to-Maturity .....Available-for-Sale






2

Reed, Inc., began operations on January 1. The following information pertains to Reed’s December 31 securities:
..................................Trading ...Available-for-Sale
Cost............................. $360,000 ......$550,000
Fair value........................ 320,000 .......450,000
Lower of cost or fair value
applied to each security .....304,000 .......420,000
If the declines are judged to be temporary, what amounts should Reed report for its trading and available-for-sale securities in the assets section of its December 31 balance sheet? Trading Available-for-Sale






3

Beach Co. determined that the decline in the fair value (FV) of an investment was below the amortized cost and permanent in nature. The investment was classified as available-for-sale on Beach’s books. The controller would properly record the decrease in FV by including it in which of the following?






4

On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.’s 10,000 outstanding shares of common stock for $20 per share but did not elect the fair value option. On December 15, Year 1, Eagle paid $40,000 in dividends to its common shareholders. Eagle’s net income for the year ended December 31, Year 1, was $120,000, earned evenly throughout the year. In its Year 1 income statement, what amount of income from this investment should Denver report?






5

Mr. Raj is to invest Rs. 100000 by end of each year for 5 years @ 5% roi. How much amount he will receive?






6

Based on the industry average, a corporation estimates that its bad debts should average 3% of credit sales. The balance in the allowance for uncollectible accounts at the beginning of Year 3 was $140,000. During Year 3, credit sales totaled $10,000,000, accounts of $100,000 were deemed to be uncollectable, and payment was received on a $20,000 account that had previously been written off as uncollectible. The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of






7

The following information has been compiled by a manufacturing company: - Sale of company products for the period to customers with net 30-day terms amounting to $150,000. - Sale of company products for the period to a customer, supported by a note for $25,000, with special terms of net 180 days. - Balance of trade receivables at the end of the last period was $300,000. - Collections of open trade receivables during the period was $200,000. - Rental income for the period, both earned and accrued but not yet collected, from the manufacturing company’s credit union for use of company facilities was $2,000. The open trade receivables balance to be shown on the statement of financial position for the period is






8

A company’s inventory is overstated at December 31 of this year. The result will be






9

A distribution company has determined its December 31 inventory on a FIFO basis at $200,000. Information pertaining to that inventory follows: Estimated selling price $204,000 Estimated cost of disposal 10,000 Normal profit margin 30,000 Current replacement cost 180,000 The company records losses that result from applying the lower of cost or market rule. At December 31, the loss that the company should recognize is






10

A company owns 10,000 shares of a corporation’s stock; the corporation currently has 40,000 shares outstanding. During the year, the corporation had net income of $200,000 and paid $160,000 in dividends. At the beginning of the year, there was a balance of $150,000 in the company’s equity method investment in the corporation account. At the end of the year, the balance in this account should be






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