Question & Answer: MULTIPLE CHOICE…..


1. Nichols Enterprises has an investment in 26,000 bonds of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott bonds are publicly traded, and The Wall Street Journal quotes a price for those bonds of $16 per bond, but Nichols believes the market has not appreciated the full value of the Elliott bonds and that a more accurate price is $18 per bond. Nichols should carry the Elliott investment on its balance sheet at:

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Question & Answer: MULTIPLE CHOICE…..
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a. $442,000, the midpoint of Nichols’ range of reasonably likely valuations of Elliott.

b. $468,000

c. $416,000

d. Either $416,000 or $468,000 as either are defensible valuations.

2. Zwick Company bought 22,500 shares of the voting common stock of Handy Corporation in January 2018. In December, Handy announced $206,200 net income for 2018 and declared and paid a cash dividend of $5 per share on all 207,000 shares of its outstanding common stock. Zwick Company’s dividend revenue from Handy Corporation in December 2018 would be:

a. $0

b. $22,413

c. $112,500

d. none of these answer choices are correct

3. Assume that, on January 1, 2018, Matsui Co. paid $2,244,000 for its investment in 74,800 shares of Yankee Inc. Further, assume that Yankee has 340,000 total shares of stock issued. The book value and fair value of Yankee’s identifiable net assets were both $680,000 at January 1, 2018. The following information pertains to Yankee during 2018:

Net Income $ 340,000
Dividends declared and paid $ 102,000
Market price of common stock on 12/31/2018 $ 32 /share

What amount would Matsui report in its year-end 2018 balance sheet for its investment in Yankee?

a. $2,686,000

b. $2,346,000

c. $ 2,296,360

d. none of these answer choices are correct

4. Nichols Corporation purchased $260,000 of Holly Inc. 8.0% bonds at par with the intent and ability to hold the bonds until they matured in 2022, so Nichols classifies its investment as held to maturity. Unfortunately, a combination of problems at Holly and in the debt market caused the fair value of the Holly investment to decline to $222,000 during 2018. Nichols calculates that, of the $38,000 decrease in fair value, $8,000 of it relates to credit losses and $30,000 relates to noncredit losses.

Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols is planning to sell the bonds in the near future. Before-tax net income for 2018 will be reduced by:

a. $30,000

b. $38,000

c. $0

d. $8,000

5. Which category of securities is presented on the balance sheet at amortized cost?

a. securities available for sale

b. equity investments of less than 20 percent ownership

c. held to maturity securities

d. trading securities

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