Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 13, Problem 3CP
To determine
Investment:
The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
To explain: The valuation of investments, when market value is not available.
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Students have asked these similar questions
Why are unrealized gains and losses from available-for-sale securities not reported as a component of net income?
Select one:
a. Because goodwill exists that must be separately accounted for
b. Because the investor has the ability to exercise significant influence over the investee
c. Because consolidated financial statements must be prepared
d. Because large swings in market value over which management has no control may distort current period performance as measured by net income
Which of the following statements is false?
A.
Internal controls are the processes by which the firm ensures that it presents accurate financial statements.
B.
Greenfield investments provide uncertain cash flows with high yields and high growth potential.
C.
Footnotes allow investors or any users to improve their assessments of the amount, timing, and uncertainty of the estimates reported in financial statements.
D.
Secondary markets are the markets in which existing, already outstanding securities are traded among investors.
Which of the following is NOT a purpose of valuing financial securities? a. Valuation is used to provide sensible financial decisions.b. Valuation is used to get the intrinsic value of a financial security.c. Valuation is helpful for investors in order to determine whether to buy or sell their securitiesd. Valuation is used to predict the exact prices of financial securities.
Chapter 13 Solutions
Financial & Managerial Accounting
Ch. 13 - Prob. 1DQCh. 13 - What causes a gain or loss on the sale of a bond...Ch. 13 - Prob. 3DQCh. 13 - Prob. 4DQCh. 13 - Prob. 5DQCh. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - What are the factors contributing to the trend...Ch. 13 - Prob. 10DQ
Ch. 13 - Prob. 1APECh. 13 - Bond investment transactions Journalize the...Ch. 13 - Prob. 2APECh. 13 - Stock investment transactions On September 12,...Ch. 13 - Prob. 3APECh. 13 - Prob. 3BPECh. 13 - Prob. 4APECh. 13 - Prob. 4BPECh. 13 - Prob. 5APECh. 13 - Prob. 5BPECh. 13 - Prob. 6APECh. 13 - Prob. 6BPECh. 13 - Prob. 1EXCh. 13 - Prob. 2EXCh. 13 - Prob. 3EXCh. 13 - Prob. 4EXCh. 13 - Prob. 5EXCh. 13 - Entries for investment in stock, receipt of...Ch. 13 - Prob. 7EXCh. 13 - Prob. 8EXCh. 13 - Entries for stock investments, dividends, and sale...Ch. 13 - Prob. 10EXCh. 13 - Prob. 11EXCh. 13 - Prob. 12EXCh. 13 - Prob. 13EXCh. 13 - Prob. 14EXCh. 13 - Prob. 15EXCh. 13 - Prob. 16EXCh. 13 - Fair value journal entries, trading investments...Ch. 13 - Prob. 18EXCh. 13 - Prob. 19EXCh. 13 - Prob. 20EXCh. 13 - Prob. 21EXCh. 13 - Prob. 22EXCh. 13 - Prob. 23EXCh. 13 - Prob. 24EXCh. 13 - Prob. 25EXCh. 13 - Prob. 26EXCh. 13 - Prob. 27EXCh. 13 - Prob. 28EXCh. 13 - Prob. 29EXCh. 13 - Debt investment transactions, available-for-sale...Ch. 13 - Prob. 2APRCh. 13 - Stock investment transactions, equity method and...Ch. 13 - Prob. 4APRCh. 13 - Prob. 1BPRCh. 13 - Prob. 2BPRCh. 13 - Stock investment transactions, equity method and...Ch. 13 - Prob. 4BPRCh. 13 - Selected transactions completed by Equinox...Ch. 13 - Benefits of fair value On July 16, 1998, Wyatt...Ch. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CP
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Similar questions
- Discuss the arguments for each position. Some individuals maintain that the only proper accounting treatment for all marketable securities is current value, while others maintain that this treatment might allow companies to manage earnings.arrow_forwardIf the auditors discover that the carrying amount of a client’s investments is overstated because of a loss in value that is other than a temporary decline in market value, they should insist thata. The approximate market value of the investments be shown in parentheses on the face of the balance sheet.b. The investments be classified as long term for balance-sheet purposes with full disclosure in the footnotes.c. The loss in value be recognized in the financial statements.d. The equity section of the balance sheet separately show a charge equal to the amount of the loss.arrow_forwardThe role of management's intent increases the risk of material misstatement re: the Existence assertion for financial investments. Question options: True Falsearrow_forward
- Which of the following is correct regarding the classification of investment in debt instruments as financial asset at fair value through OCI? Group of answer choices All of these. An entity may make an irrevocable election to classify investment in a debt instrument that is not ‘held for trading’ as such. In order to be classified as such, a debt instrument needs to both have simple principal and interest cash flows and be held in a business model in which both holding and selling financial assets are integral to meeting management’s objectives. This classification is not allowed for investment in debt instruments.arrow_forwardAn auditor is establishing procedures for testing management’s assertions regarding existence in relation to reported investments in marketable securities. The auditor is considering using confirmations or observation. Which of these techniques would be appropriate for obtaining evidence about existence? A. Confirmations Only B. Observations Only C. Neither confirmations nor observations D. Both confirmations and observationsarrow_forwardThe use of fair value to account for debt investments allows for more relevance of accounting figures because they would reflect the latest market assessment and opinion regarding these instruments. a. Do you agree with this statement? Explain why. b. What are the possible disadvantages’ of using the fair value accounting?arrow_forward
- Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e., bundling and unbundling financial assets) might be better spent on creating wealth (i.e., creating real assets). Evaluate this criticism. Are any benefits realized by creating an array of derivative securities from various primary securities?arrow_forwardWhich of the following is correct regarding the classification of investment in debt instruments as financial asset at fair value through OCI? Group of answer choices A. An entity may make an irrevocable election to classify investment in a debt instrument that is not ‘held for trading’ as such. B. All of these. C. This classification is not allowed for investment in debt instruments. D. In order to be classified as such, a debt instrument needs to both have simple principal and interest cash flows and be held in a business model in which both holding and selling financial assets are integral to meeting management’s objectives.arrow_forwardWhere are changes in the fair value of equity securities and reported? These fair values are readilydeterminable and the securities do not provide the owner with significant influence over the investee.a. as income or loss on the income statementb. as a component of accumulated other comprehensive income on the balance sheetc. as a prior-period adjustment to retained earnings on the balance sheetd. these value changes are not reported until the gain or loss is realizedarrow_forward
- An auditor’s analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused bya. An error in recording amortization of the excess of the investor’s cost over the investment’s underlying book value.b. The investee’s decision to reduce cash dividends declared per share of its common stock.c. An error in recording the unrealized gain from an increase in the fair value of available for sale securities in the income account for trading securities.d. A substantial fluctuation in the price of the investee’s common stock on a national stock exchange.arrow_forwardWhich of the following statements is not true of the fair-value method of accounting for marketable securities? Select one: A. The investment account is recorded at current fair value on the balance sheet. B. Interim changes in the investments’ fair value may or may not affect income depending on the securities’ classification. C. This method is used when the reporting company generally owns less than 20% of the investee company. D. Dividends are treated as a return of the capital invested. E. None of the abovearrow_forward15. In performing risk assessment procedures for investments, an auditor may inquire of the client personnel which of the following questions? Group of answer choices Is there independent review of investments measured at fair value based on market valuation? Is investment income independently recalculated? All of the choices Are investment records periodically reconciled to actual listing of investments (i.e., per count or investment custodian statement)?arrow_forward
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