Porter Co. purchased to hold to maturity

On October 1, 2007, Porter Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2016, pay interest semiannually on February 1 and August 1. Porter uses the straight-line method of amortization. The bonds should be reported in the December 31, 2007 balance sheet at a carrying value of a. $975,000.




72.On November 1, 2007, Little Company purchased 600 of the $1,000 face value, 9% bonds of Player, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2012, pay interest semiannually on March 1 and September 1. Assuming that Little 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 Little’s December 31, 2007, balance sheet at a. $600,000.




73.On November 1, 2007, Morton Co. purchased Gomez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2014. Morton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Morton’s 2007 income statement as a result of Morton’s availablefor-sale investment in Gomez was a. $4,375.




74.On October 1, 2007, Lyman 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, 2011. Lyman uses straight-line amortization. Ignoring income taxes, the amount reported in Lyman’s 2007 income statement from this investment should be a. $4,500.




75.During 2005, Plano Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2007 was $1,960,000. The bonds mature on March 1, 2012, and pay interest on March 1 and September 1. Plano sells 1,000 bonds on September 1, 2008, for $988,000, after the interest has been received. Plano uses straight-line amortization. The gain on the sale is a. $0.




76.Redman Company’s trading securities portfolio which is appropriately included in current assets is as follows:

December 31, 2007

Fair Unrealized

Cost Value Gain (Loss)

Arlington Corp. 250,000 200,000 $(50,000) Downs, Inc. 245,000 265,000 20,000

$495,000 $465,000 $(30,000)

Ignoring income taxes, what amount should be reported as a charge against income in Redman’s 2007 income statement if 2007 is Redman’s first year of operation? a. $0.




77.On its December 31, 2006, balance sheet, Quinn Co. reported its investment in availablefor-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2007, the fair value of the securities was $585,000. What should Quinn report on its 2007 income statement as a result of the increase in fair value of the investments in 2007? a. $0.

b.Unrealized loss of $15,000.

c.Realized gain of $35,000.

d.Unrealized gain of $35,000.

78.During 2007, Ellis Company purchased 20,000 shares of Hiller Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2007. Ellis sold all of the Hiller stock for $17 per share on December 3, 2008, incurring $14,000 in brokerage commissions. Ellis Company should report a realized gain on the sale of stock in 2008 of a. $11,000.




Use the following information for questions 79 and 80.

On its December 31, 2007 balance sheet, Klugman Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2008 in the composition of Klugman’s portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio:

Security Cost Fair value at 12/31/08

X $125,000 $160,000 Y 100,000 95,000

Z 175,000 125,000 $400,000 $380,000

79.What amount of unrealized loss on these securities should be included in Klugman’s stockholders’ equity section of the balance sheet at December 31, 2008? a. $30,000.




80.The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2008 is a. $30,000.




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