土豆妮

On January 9, 2006, Company X purchased $1,000,000 of government bonds and 100,000 shares of stock in Company S for $2,000,000. They are the first marketable securities purchased in the company's history. The company intends on holding the stock for the foreseeable future and holding the bonds to maturity. As of December 31, the bonds were valued at $900,000, and the stocks were valued at $2,200,000. The bonds paid $50,000 of interest and the stocks paid $20,000 of dividends. In 2006, Company S had earnings per share of $0.90.

The marketable securities balance amount shown on the balance sheet is:

A) $3,000,000.

B) $3,100,000.

C) $3,200,000.

---

The bonds are classified as debt securities held-to-maturity and are valued at cost. The stocks are classified as debt and equity securities available for sale and are valued at market value.

---

The impact of the marketable securities on net income is:

A) $70,000.

B) $270,000.

C) $140,000.

---

The bonds are classified as debt securities held-to-maturity, and the income generated from them is $50,000. The stocks are classified as debt and equity securities available for sale, and although the increased value is reported as an asset, the gain is reported in the securities valuation account in the equity section and not on the income statement. The effect of the stocks on income is the $20,000 of dividends.

土豆妮

Under which of the following is a minority interest account most likely to appear on the consolidated balance sheet?

1. The acquisition method.
2. Proportionate consolidation.

A) II only.

B) I only.

C) Both I and II.

---

Proportionate consolidation is similar to a business acquisition, except the investor only reports the proportionate share of the assets, liabilities, revenues, and expenses of the joint venture. Since only the proportionate share is reported, no minority owners’ interest is necessary.