Lesson 9 (Investments)

Question 1

at year end, make an adjusting entry to reflect any changes in the market value of the investment (i.e., change the valuation of the asset on the balance sheet from its cost to its current market value and record an unrealizes gain or loss)
what is this ?

Answer 1

mark to market adjustment

Question 2

the mark to market adjustment is an exception to which generally accepted principle ?

Answer 2

historical cost concept

Question 3

1. when investments is acquired, record it at costs (represents an asset)
2. if any dividends are received, record them as dividend revenue
3. at year end, make an adjusting entry to reflect any changes in the market value of the investment
4. when the investments are sold, record the cash received from the sale and any gain or loss realized from the sale
   what are these ?

Answer 3

4 accountable events related to owning less than 20% of the other companies outstanding stock

Question 4

gains and losses resulting from the sale of investments
what is this ?

Answer 4

realized gain and losses

Question 5

gain and losses resulting from changes in the value of investments - used in the mark to market adjustment

Answer 5

unrealized gains and losses

Question 6

to calculate the gain or loss on sale (realized gain or loss), you do what ?

Answer 6

compare the selling price of the investment to the amount at which the investments are being reported on the balance sheet

Question 7

both realized and unrealized gains and losses are recorded on the what ?

Answer 7

income statement

Question 8

1. when investment is acquired, record it at cost (represents an asset)
2. if any dividends are received, record them as a decrease to the investment account
3. record your share of the other company’s net income as an increase to the investment account and as investment revenue
   4.

Answer 8

4 accountable events related to owning 20% or more of the other company outstanding stock

Question 9

record your share of the other company net income as an increase to the investment account and as investment revenue when you own more than 20% of the other companies outstanding stock
how do you do this ?

Answer 9

(other companies net income x % ownership)

Question 10

the accounting for these types of investments when owning more than 20% of the other company’s outstanding stock is called ?

Answer 10

equity method

Question 11

there is no mark to market adjustment when you own ?

Answer 11

more than 20% of the other company’s outstanding stock