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Chapter 13: Q3Q (page 658)

Question: What is the cost of a long-term investment in bonds?

Short Answer

Expert verified

Answer:

The cost of the long term is the cost of acquisition and brokerage fees, etc.

Step by step solution

01

Definition of long-term investment

Those investments whose period of maturity is more than 12 months is known as a long-term investment.

02

Step 2:

It is clear from the word cost incurred during the purchase of that investment is known as the cost of long-term bonds. It includes all the costs like cost of acquisition, payment of brokerage fee, and other expenses. In this way, cost helps investors to know the actual cost of the

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Most popular questions from this chapter

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

Question: What evidence is necessary to demonstrate the ability to defer settlement of short-term debt?

Distinguish between the accounting treatment for marketable versus nonmarketable equity securities.

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company’s first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson’s net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.
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