Question Details

AC 551
WEEK 7
 1.	Question :	(TCO B) Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity.

For the year ended December 31, 2011, Patton Company should report interest revenue from the Scott Co. bonds of 

 	Student Answer:		 $42,392.

 		 	 $41,409.

 			 $41,368.

 			 $40,000.

 	Instructor Explanation:	Chapter 17, $376,000 X .055 - $20,686, ($376,000 + $686) X .055 - $20,723 = $41,409


 	Points Received:	5 of 5 
 	Comments:	



Question 2.	Question :	(TCO B) On October 1, 2010, Menke Co. purchased (to hold to maturity) 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1, and the bonds mature on December 1, 2014. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2010 income statement from this investment should be 

 	Student Answer:		 $4,500.

 		 	 $4,020.

 			 $4,980.

 			 $5,460.

 	Instructor Explanation:	Chapter 17, ($200,000 X .09 X 3/12) - ($8,000 X 3/50) = $4,020


 	Points Received:	5 of 5 
 	Comments:	



Question 3.	Question :	(TCO B) On its December 31, 2010 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2011 in the composition of Calhoun's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio:

 Security           Cost                 Fair Value at 12/31/11
 
 X                     $125,000                       $160,000
 Y                     100,000                        95,000
 Z                      175,000                       125,000
                         
                         $400,000                       $380,000

What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2011? 

 	Student Answer:		 $30,000.

 		 	 $20,000.

 			 $10,000.

 			 $0. 

 	Instructor Explanation:	Chapter 17, ($400,000 - $380,000) = $20,000


 	Points Received:	5 of 5 
 	Comments:	



Question 4.	Question :	(TCO B) Valet Corp. began operations in 2010. An analysis of Valet's equity securities portfolio acquired in 2010 shows the following totals at December 31, 2010 for trading and available-for-sale securities: 

                                                                         Trading            Available-For-Sale
                                                                        Securities          Securities
 
Aggragate Cost                                                 $90,000              $110,000
Aggragate Fair Value                                           65,000               95,000

What amount should Valet report in its 2010 income statement for unrealized holding loss? 

 	Student Answer:		 $40,000.

 			 $10,000.

 			 $15,000.

 		 	 $25,000. 

 	Instructor Explanation:	Chapter 17, $90,000 - $65,000 = $25,000


 	Points Received:	5 of 5 
 	Comments:	



Question 5.	Question :	(TCO B) On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'s common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity, and the balance in Reston's investment account was $720,000 at December 31, 2010. Ace reported net income of $450,000 for the year ended December 31, 2010, and paid common stock dividends totaling $180,000 during 2010. How much did Reston pay for its 25% interest in Ace? 

 	Student Answer:	 	 $652,500

 			 $765,000

 			 $787,500

 			 $877,500

 	Instructor Explanation:	Chapter 17, $720,000 - ($450,000 X 25%) + ($180,000 X 25%) = $662,500


 	Points Received:	5 of 5 
 	Comments: