The Cost Of Debt Investments In Common Stock

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Register to read the introduction… In accordance with the cost principle, the cost of debt investments includes brokerage fees and accrued interest. 8. In accounting for stock investments of less than 20%, the equity method is used.

9. Dividends received on stock investments of less than 20% should be credited to the Stock Investments account.

10. If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

11. The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock. 12. Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.

13. Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account.

14. Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.

15. Consolidated financial statements are prepared in place of the financial statements for the parent and subsidiary
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45. On January 1, Talent Company purchased as a short-term investment a $1,000, 8% bond for $1,050. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?
a. Cash....................................................................................... 1,200 Debt Investments ......................................................... 1,200
b. Cash....................................................................................... 1,220 Debt Investments.......................................................... 1,050 Gain onSaleof Debt Investments............................... 150 Interest Revenue..........................................................

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