1. If the bonds are prchased between interest dates, the purchase price includes
ID: 2435260 • Letter: 1
Question
1. If the bonds are prchased between interest dates, the purchase price includes accrued interest since the last interest payement.2. When bonds held as long-term investments are purchased at a price other than face value, the premium or discount should be amortized over the remaining life of the bonds.
3. To record the amortization of a premium on a bond investment, Investment in Bonds would be debited and Interest Revenue would be credited.
4. Any gains or losses on the sale of long-term investments normally would be reported in the Other Income or Other Loss section of the income statement.
5. The fair market value of bond investments should be disclosed, either on the face of the financial statements or in an accompanying note.
6. Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments.
7. Other comprehensive income transactions should be reported net of taxes.
8. Comprehensive income does not affect net income or retained earnings.
9. Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.
10. Temporary investments are reported on the balance sheet at cost.
11. Unrealized gains and losses are reported as other comprehensive income items until the related securities are sold, then the gains and losses become realized and are included in determining net income.
12. Ordinarily, a corporation owning a significant portion of the voting stock of another corporations accounts for the investment using the equity method.
13. Under the equity method, a stock purchase is recorded at its original cost, but is not subsequently adjusted to fair market value.
14. The equity method causes the investment account to mirror the proportional changes in book value of the investee.
15. it is not possible for one company to influence the operating polocies of another company unless it owns more than 50% interest in that company.
Explanation / Answer
The equity method causes the investment account to mirror the proportional changes in book value of the investee.
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