1. Bass Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2020 for $60,000.

If Bass sells all of its Community bonds for $56,500, what gain or loss is recognized?

a. Loss of $0

b. Loss of $3,500

c. Gain of $0

d. Gain of $3,500

2. Reporting investments at fair value is

a. applicable to stock securities only.

b. applicable to debt securities only.

c. applicable to both debt and stock securities.

d. a conservative approach because only losses are recognized.

3. Lock Corporations trading portfolio at the end of the year is as follows:

Security Cost Fair Value

Common Stock C $10,000 $12,000

Common Stock D 8,000 5,000

$18,000 $17,000

Lock subsequently sells Stock C for $12,000. What entry is made to record the sale?

a. Cash...................................................................................... 12,000

Stock Investments........................................................ 12,000

b. Cash...................................................................................... 12,000

Fair Value Adjustment Trading..................................... 2,000

Stock Investments........................................................ 10,000

c. Cash...................................................................................... 12,000

Stock Investments........................................................ 10,000

Gain on Sale of Stock Investments.............................. 2,000

d. Cash...................................................................................... 12,000

Stock Investments........................................................ 6,000

Gain on Sale of Stock Investments.............................. 6,000

4. If a parent company acquires wholly owned subsidiary at an amount greater than the book value, the excess should be

a. allocated to expense on the date of acquisition.

b. allocated to identifiable assets to the extent of their fair values, with any remainder allocated to goodwill.

c. allocated to goodwill, with any remainder allocated to the identifiable assets.

d. set up as a liability to the controlling interest.

Important note:

PLEASE SHOW WORK FOR ALL QUESTIONS!