Finance Chapter 12 - Financial Investments

<p>At the cost of acquisition on the purchase date. (A)</p> Signup and view all the answers

<p>Gain or loss = Proceeds from sale - Book value of investment. (C)</p> Signup and view all the answers

<p>Management estimates or assumptions for an operating asset. (A)</p> Signup and view all the answers

<p>Sufficient shares to influence management decisions. (C)</p> Signup and view all the answers

<p>Gains or losses from the sale of passive investments. (A)</p> Signup and view all the answers

<p>To strategically penetrate or expand in the market (A)</p> Signup and view all the answers

<p>Ownership of less than 20% of voting stock (A)</p> Signup and view all the answers

<p>Significant Influence (B)</p> Signup and view all the answers

<p>The type and amount of securities purchased (A)</p> Signup and view all the answers

<p>Ability to affect the strategic corporate direction (D)</p> Signup and view all the answers

<p>Fair Value through Net Income (C)</p> Signup and view all the answers

<p>To enhance relationships with other organizations (C)</p> Signup and view all the answers

<p>Through legal agreements (C)</p> Signup and view all the answers

<p>Influence derived through legal agreements and percentage of stock owned (A)</p> Signup and view all the answers

<p>It determines the classification as Trading or Available-for-Sale Securities (C)</p> Signup and view all the answers

<p>$13,000 (C)</p> Signup and view all the answers

<p>Accumulated Other Comprehensive Income (D)</p> Signup and view all the answers

<p>Fair Value through Income (D)</p> Signup and view all the answers

<p>Ability to affect financial or operating policies (D)</p> Signup and view all the answers

<p>When significant influence exists (C)</p> Signup and view all the answers

<p>As income by the investor (C)</p> Signup and view all the answers

<p>Unrealized gains are recognized in income immediately. (C)</p> Signup and view all the answers

<p>Establishing long-term relationships for strategic benefits. (A)</p> Signup and view all the answers

<p>$65,000 (C)</p> Signup and view all the answers

<p>Subtract $40,000 from contributed capital (B)</p> Signup and view all the answers

<p>$38,000 (D)</p> Signup and view all the answers

<p>$251,000 (C)</p> Signup and view all the answers

<p>Interest Income 25,000; Cash 25,000 (B)</p> Signup and view all the answers

<p>$100,000 (A)</p> Signup and view all the answers

<p>The investment remains reported at its initial cost (C)</p> Signup and view all the answers

<p>The value is adjusted to fair value in the financial statements. (B)</p> Signup and view all the answers

<p>Intended to be held for capital gains and interest revenue. (C)</p> Signup and view all the answers

<p>The fair value will decrease to $487,000. (B)</p> Signup and view all the answers

<p>They should be marked to market value as trading or available-for-sale securities. (A)</p> Signup and view all the answers

<p>Interest income is included, and any price changes result in gains or losses being recognized. (D)</p> Signup and view all the answers

<p>Held-to-maturity method (B)</p> Signup and view all the answers

<p>$60,000 (C)</p> Signup and view all the answers

<p>$3,200 (C)</p> Signup and view all the answers

<p>$2,400 (C)</p> Signup and view all the answers

<p>When the investor owns more than 50% of the voting common stock (C)</p> Signup and view all the answers

<p>Investment income and dividends received (A)</p> Signup and view all the answers

<p>Report the investor's net income (C)</p> Signup and view all the answers

<p>It increases the investment account (C)</p> Signup and view all the answers

<p>Consolidation method (B)</p> Signup and view all the answers

Purchases of debt and equity securities of other companies, used for short-term cash investment, strategic alliances, or market expansion

A three-level classification of the value of an investment, used in accounting, based on the reliability of the valuation technique.

Debt securities bought and held primarily for short-term profit; accounted for at fair value on the income statement.

Debt securities not intended for immediate resale, reported at fair value with changes recorded in other comprehensive income

Investments in equity securities with less than 20% ownership, where the investor can't control the investee company.

Ownership between 20% and 50% (or equivalent influence), allowing the investor to influence but not control the investee company.

Ownership of 50% or more, or similar control via legal agreements. This gives the investor overall control.

Accounting method used for investments with significant influence; investor records its share of the investee's income or loss in its own income statement.

Accounting treatment for passive investments in equity securities; the investment is reported at fair value with unrealized gains and losses recognized in the net income.

The company that is the subject of the investment by another company.

The amount an independent buyer would pay for an asset.

Fair value calculation using quoted prices of actively traded assets.

Fair value calculation when there's no active market for the asset, based on models.

Fair value determined from quoted prices of identical assets/liabilities in an active market.

Passive investments are recorded at cost on the purchase date.

Gain or loss on investment sale is calculated as Proceeds from sale less the Book value of the investment.

A method for accounting for debt securities where the investor intends to hold the bonds until maturity. Value changes aren't recorded in the income statement, value is only recorded at cost on the balance sheet.

Debt securities held for investment income and potentially capital gains. Management may sell when advantageous or if needed.

Income earned from interest paid on debt securities.

An asset, typically a debt security. Recorded at cost.

A financial instrument, typically debt, where a borrower issues a bond to a lender, promising to repay a certain amount of money at a specific time with interest payments.

Debentures are recorded on the balance sheet at current market value when there is no intention to hold them to maturity. Reporting at fair market value is required.

An adjustment made to the value of an investment in a company based on changes in its market value.

Investments whose unrealized gains or losses are reported in accumulated other comprehensive income (AOCI).

A loss in value of an investment that has not yet been realized through a sale.

The account tracking the cost and value of an investment.

A component of equity that encompasses unrealized gains and losses on available-for-sale securities, that are not yet realized.

A process of combining the financial statements of a parent company and its subsidiaries to reflect the economic performance of the entire group as a single entity.

Changes made during consolidation to remove duplicate entries and ensure a unified picture of the group's financial position, eliminating intercompany transactions.

Capital contributed by shareholders to the company, representing the funds invested by the owners.

Accumulated profits that have not been distributed to shareholders, representing the company's accumulated earnings over time.

The net income earned by the company in which an investor has an investment. The investor records its share of the investee's income on its own financial statements under the equity method.

A distribution of profits paid by the company in which an investor has an investment. The investor records its share of the dividends received as a reduction in the investment account.

Financial transactions that occur between two companies that are under common control. These transactions are eliminated when preparing consolidated financial statements.

In accounting, control refers to the ability to direct the financial and operating policies of a company. This is typically achieved by owning a majority of the voting shares.

When a company acquires another company by exchanging its own shares for all the shares of the target company, the acquisition is recorded at the book value of the target company's assets.

When preparing consolidated financial statements, transactions between the parent and subsidiary company are eliminated to avoid double counting and provide an accurate picture of the combined entity.