Accounting Quiz #3
Question 1
On January 1, 2019, Wildcat bought 1,000 common shares of Kellogg for $8,000 cash. Wildcat classified these as trading securities. The share price of Kellogg closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $3,000 cash dividends from Kellogg on April 1, 2019 and $2,000 cash dividends from Kellogg on April 1, 2020. Kellogg has 10,000 shares outstanding. In addition, Kellogg reported Net Income of $20,000 for 2019 and Net Income of $40,000 for 2020. On October 26, 2020, Wildcat sold 500 shares of Kellogg for $7,000.
What is the impact of the above transactions on the Net Income reported by Wildcat for the year ending December 31, 2019? Assume that Wildcat does not pay any taxes. Include a negative sign if the impact is a decrease in income.
Question 2
On January 1, 2019, Wildcat bought 1,000 common shares of Kellogg for $8,000 cash. Wildcat classified these as trading securities. The share price of Kellogg closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $3,000 cash dividends from Kellogg on April 1, 2019 and $2,000 cash dividends from Kellogg on April 1, 2020. Kellogg has 10,000 shares outstanding. In addition, Kellogg reported Net Income of $20,000 for 2019 and Net Income of $40,000 for 2020. On October 26, 2020, Wildcat sold 500 shares of Kellogg for $7,000.
What is the impact of the above transactions on the Net Income reported by Wildcat for the year ending December 31, 2020? Assume that Wildcat does not pay any taxes. Include a negative sign if the impact is a decrease in income.
Question 3
On January 1, 2019, Wildcat bought 3,000 common shares of McCormick for $30,000 cash. McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $9,000 cash dividends from McCormick on April 1, 2019 and $6,000 cash dividends from McCormick on April 1, 2020. In addition, McCormick reported Net Income of $50,000 for 2019 and Net Income of $40,000 for 2020. On March 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
What is the impact of the above transactions on the Net Income reported by Wildcat for the year ending December 31, 2019? Assume that Wildcat does not pay any taxes ( Include a negative sign if the impact is a decrease in income).
Question 4
On January 1, 2019, Wildcat bought 3,000 common shares of McCormick for $30,000 cash. McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $9,000 cash dividends from McCormick on April 1, 2019 and $6,000 cash dividends from McCormick on April 1, 2020. In addition, McCormick reported Net Income of $50,000 for the year ended December 31, 2019 and Net Income of $40,000 for the year ended December 31, 2020. On January 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
What is the impact of the above transactions on the Net Income reported by Wildcat for the year ending December 31, 2020? Assume that Wildcat does not pay any taxes. Include a negative sign if the impact is a decrease in income.
Question 5
On Fe
uary 1, 2019, Wildcat bought 3,000 common shares of McCormick for $30,000 cash. McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. In addition, McCormick reported Net Income of $50,000 for 2019 and Net Income of $40,000 for 2020. On January 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
If Wildcat reported $2,000 gain on sale of its 500 shares in McCormick on January 1, 2020 and also reported $25,000 as the value of its equity investments on December 31, 2020, determine the sum of dividends McCormick paid to all its shareholders over the period of two years from January 1, 2019 till December 31, 2020?
Question 6
On January 1, 2019, Wildcat bought 3,000 common shares of McCormick for $30,000 cash. . McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $9,000 cash dividends from McCormick on April 1, 2019 and $6,000 cash dividends from McCormick on April 1, 2020. In addition, McCormick reported Net Income of $50,000 for 2019 and Net Income of $40,000 for 2020. On January 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
What is the value of equity investments in McCormick that Wildcat would report on its Balance sheet as of December 31, 2020?
Question 7
On Fe
uary 1, 2019, Wildcat bought 3,000 common shares of McCormick for $30,000 cash. McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $9,000 cash dividends from McCormick on April 1, 2019 and $6,000 cash dividends from McCormick on April 1, 2020. In addition, McCormick reported Net Income of $50,000 for 2019 and Net Income of $40,000 for 2020. On January 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
What is the adjustment (to the net income) in the operating section of the cash flow statement prepared under the indirect method for 2019 related to Wildcat’s equity investment in McCormick? Hint: If multiple items would affect such adjustments, then provide the sum effect of such multiple items as your answer below. Input a positive number if the the adjustment is to add back to net income and a negative number if the adjustment is to subtract from net income
Question 8
On January 1, 2018, ABC Ltd. purchased debt securities for $100,000 with a coupon rate of 10% per annum, payable annually on December 31. The following data pertains to its investments in these debt securities:
Date
Fair value of investments in debt securities
Interest (coupon) income
12/31/2018
$101,000
$10,000
12/31/2019
$99,000
$10,000
On 10/26/2020, ABC Ltd. sold these debt securities for $108,500 cash. Answer the following three questions 8-10 based on the above data, using the assumption that the firm classified its investments in these debt securities as available-for-sale (AFS) securities.
Determine the balance in the accumulated other comprehensive income (AOCI) at 12/31/2019 ( Include a negative sign if the balance is negative):
Question 9
Refer to the data in question # 8 above. Assume that the firm classified its investments in these debt securities as AFS Securities. Determine the impact on the income statement arising out of holding this AFS debt security for the year ended 12/31/2019 ( Include a negative sign if the impact is a decrease in income):
Question 10
Refer to the data in question # 8 above. Assume that the firm classified its investments in these debt securities as AFS Securities. Determine the impact on the income statement related to this AFS debt security for the year ended 12/31/2020 (Include a negative sign if the impact is a decrease in income):
Refer to the data in question # 8 above. Answer the following two questions 11 and 12 based on the above data, using the assumption that the firm classified its investments in these debt securities as Trading Securities.
Question 11
Refer to the data in question # 8 above. Assume that the firm classified its investments in these debt securities as Trading Securities. Determine the impact on the income statement related to these Trading Securities for the year ended 12/31/2018 ( Include a negative sign if the impact is a decrease in income):
Question 12
Refer to the data in question # 8 above. Assume that the firm classified its investments in these debt securities as Trading Securities. Determine the impact on the income statement related to these Trading Securities for the year ended 12/31/2020 ( Include a negative sign if the impact is a decrease in income):