1. For what reasons do corporations purchase the stock of other corporations?
2. Explain how marketable securities should be classified in the balance sheet.
3. Describe the valuation bases used for marketable equity securities.
4. Under what circumstances is the equity method used to account for stock investments?
5. Explain briefly the accounting for stock dividends and stock splits from the investor's point of view.
6. Of what significance is par value to the investing corporation?
7. What is the purpose of preparing consolidated financial statements?
8. Under what circumstances must consolidated financial statements be prepared?
9. Why is it necessary to make elimination entries on the consolidated statement work sheet? Are these elimination entries also posted to the accounts of the parent and subsidiary? Why or why not?
10. Why might a corporation pay an amount in excess of the book value for a subsidiary's stock? Why might it pay an amount less than the book value of the subsidiary's stock?

14 Stock investments 1. For what reasons do corporations purchase the stock of other corporations? 2. Explain how marketable securities should be classified in the balance sheet. 3. Describe the valuation bases used for marketable equity securities. 4. Under what circumstances is the equity method used to account for stock investments? 5. Explain briefly the accounting for stock dividends and stock splits from the investor's point of view. 6. Of what significance is par value to the investing corporation? 7. What is the purpose of preparing consolidated financial statements? 8. Under what circumstances must consolidated financial statements be prepared? 9. Why is it necessary to make elimination entries on the consolidated statement work sheet? Are these elimination entries also posted to the accounts of the parent and subsidiary? Why or why not? 10. Why might a corporation pay an amount in excess of the book value for a subsidiary's stock? Why might it pay an amount less than the book value of the subsidiary's stock? 14.12.2 Demonstration problem Demonstration problem A Demonstration problem B 15 Long-term financing: Bonds 1. What are the advantages of obtaining long-term funds by the issuance of bonds rather than additional shares of capital stock? What are the disadvantages? 2. What is a bond indenture? What parties are usually associated with it? Explain why. 3. Explain what is meant by the terms coupon, callable, convertible, and debenture. 4. 5. What is meant by the term trading on the equity? 6. When bonds are issued between interest dates, why should the issuing corporation receive cash equal to the amount of accrued interest (accrued since the preceding interest date) in addition to the issue price of the bonds? 7. Why might it be more accurate to describe a sinking fund as a bond redemption fund? 8. Why is the effective interest rate method of computing periodic interest expense considered theoretically preferable to the straight-line method? 9. Why would an investor whose intent is to hold bonds to maturity pay more for the bonds than their face value? 10. Of what use is the times interest earned ratio? 15.10 Demonstration problem Problem B Ecological Water Filtration, Inc., is going to issue USD 400,000 face value of 10 percent, 15-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2024 June 30. a. Compute the price investors should offer if they seek a yield of 8 percent on these bonds. Also, compute the first six months' interest, assuming the bonds are issued at this price. Use the interest method and calculate all amounts to the nearest dollar. 14 Stock investments 1. For what reasons do corporations purchase the stock of other corporations? 2. Explain how marketable securities should be classified in the balance sheet. 3. Describe the valuation bases used for marketable equity securities. 4. Under what circumstances is the equity method used to account for stock investments? 5. Explain briefly the accounting for stock dividends and stock splits from the investor's point of view. 6. Of what significance is par value to the investing corporation? 7. What is the purpose of preparing consolidated financial statements? 8. Under what circumstances must consolidated financial statements be prepared? 9. Why is it necessary to make elimination entries on the consolidated statement work sheet? Are these elimination entries also posted to the accounts of the parent and subsidiary? Why or why not? 10. Why might a corporation pay an amount in excess of the book value for a subsidiary's stock? Why might it pay an amount less than the book value of the subsidiary's stock? 14.12.2 Demonstration problem Demonstration problem A Demonstration problem B 15 Long-term financing: Bonds 1. What are the advantages of obtaining long-term funds by the issuance of bonds rather than additional shares of capital stock? What are the disadvantages? 2. What is a bond indenture? What parties are usually associated with it? Explain why. 3. Explain what is meant by the terms coupon, callable, convertible, and debenture. 4. 5. What is meant by the term trading on the equity? 6. When bonds are issued between interest dates, why should the issuing corporation receive cash equal to the amount of accrued interest (accrued since the preceding interest date) in addition to the issue price of the bonds? 7. Why might it be more accurate to describe a sinking fund as a bond redemption fund? 8. Why is the effective interest rate method of computing periodic interest expense considered theoretically preferable to the straight-line method? 9. Why would an investor whose intent is to hold bonds to maturity pay more for the bonds than their face value? 10. Of what use is the times interest earned ratio? 15.10 Demonstration problem Problem B Ecological Water Filtration, Inc., is going to issue USD 400,000 face value of 10 percent, 15-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2024 June 30. a. Compute the price investors should offer if they seek a yield of 8 percent on these bonds. Also, compute the first six months' interest, assuming the bonds are issued at this price. Use the interest method and calculate all amounts to the nearest dollar