143. Define the return on total assets and explain how it is used to measure a company’s
financial performance.
144. Explain how to record the sale of trading securities.
145. Explain how held-to-maturity debt securities are accounted for at and after acquisition
and how they are reported in the financial statements.
146. Explain how available-for-sale debt and equity securities are accounted for at and after
acquisition and how they are reported in financial statements.
147. Explain how equity securities having significant influence are accounted for and reported
in the financial statements. Include a discussion of the criterion for these securities in terms of
an investee’s voting stock.
148. Explain how transactions (both sales and purchases) in a foreign currency are recorded
and reported.
Problems
149. On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year
bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1.
The company intends to hold these bonds until they mature. Prepare the journal entries to
record the bond purchase, the receipt of the first semiannual interest payment on October 1 of
the current year, and the accrual of interest for the year-end December 31.
150. A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay
6% interest semiannually on September 1 and March 1. The company intends to hold the
bonds until they mature. Prepare the journal entries for the following dates and transactions
related to this bond acquisition.
(1) Bonds purchased on September 1.
(2) Year-end adjusting entry, December 31.
(3) Receipt of semiannual interest March 1.
(4) Redemption of the bonds at maturity on August 31.
151. On May 1 of the current year, a company paid $200,000 to purchase 8%, 10-year bonds
with a par value of $200,000; interest is paid semiannually on March 1 and September 1. The
company intends to hold the bonds until they mature. Prepare the journal entries to record (1)
the bond purchase, (2) the receipt of the first semiannual interest payment on September 1 of
the current year, (3) the accrual of interest for year-end December 31, and (4) the receipt of
the second semiannual payment on May 1.
152. A company reported net sales of $900,000, net income of $100,000 and average total
assets of $425,000. Calculate its return on total assets.
153. A company had net income of $450,000 in Year 1 and $620,000 in Year 2. The company
had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the
return on total assets for Year 1and Year 2. Comment on the results, did the company’s
performance improve?
154. A company had net income of $45,000, net sales of $390,000, and average total assets of
$250,000 for the current year. Calculate the company’s profit margin, total asset turnover, and
return on total assets.
155. A company reported net income of $275,000, net sales of $2,500,000, and average total
assets of $2,100,000 for the current year. Calculate this company’s profit margin, total asset
turnover, and return on total assets.
156. A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also
reported net sales of $735,000 in Year 1 and $798,000 in Year 2. The company’s average total
assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company’s profit
margin, total asset turnover and return on total assets for Year 1and Year 2. Comment on the
results.
157. A company had net income of $76,000 in Year 1 and $88,000 in Year 2. Its net sales
were $640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were
$670,000 and $712,000 in Year 2. Calculate the profit margin, total asset turnover and return
on total assets for both years. Comment on the results.
158. Wiffery Company had the following trading securities in its portfolio at December 31.
The Fair Value Adjustment – Trading account had a balance of zero prior to year-end
adjustment. Prepare the appropriate adjusting journal entry.
159. Schoodic Company had the following long-term available-for-sale securities in its
portfolio at December 31 for each of the years listed. The year-end cost and fair values for its
portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to record each
year-end market adjustment for these securities.
Available-for-Sale Securities
Cost Fair
Value
Year 1 $ 394,500 $ 389,900
Year 2 406,400 412,600
Year 3 454,800 472,000
160. Halam Company had the following transactions relating to investments in trading
securities during the year. Prepare the required general journal entries for these transactions.
May 4 Halam purchased 600 shares of Cob Company stock at $120 per share plus a
$750 brokerage fee.
July 1 Halam received a $2.50 per share cash dividend on the Cob Company stock.
Sept. 15 Sold 300 shares of Cob Company stock for $125 per share, less a $450 brokerage
fee.
Dec. 31 The fair value of the Cob Company stock (the only investment that Halam owns)
is $124 per share. The balance of the Fair value Adjustment – Trading account had a zero
balance prior to adjustment.
161. Clarity Corporation had the following transactions involving investments in trading
securities during the year. Prior to these transactions, Clarity had never had any investments
in trading securities. Prepare the required general journal entries to record these transactions.
Feb. 16 Purchased 800 shares of GN Corporation stock at $28 per share plus a $400
brokerage fee.
Feb. 26 Purchased 500 shares of Honeyville Co. stock at $19 per share plus a $300
brokerage fee.
Mar. 2 Received a $0.95 per share dividend from the GN Corporation.
Mar. 28 Sold 200 shares of GN Corporation stock for $31 per share less a $150
brokerage fee.
Apr. 20 Sold 150 shares of Honeyville Co. stock at $17 per share less a $100 brokerage
fee.
Apr. 30 The company is preparing quarterly financial statements; prepare an adjusting
entry for the fair value adjustment on the trading securities. At April 30, the GN stock has a
fair value of $30 per share, and the Honeyville stock has a fair value of $16 per share.
162. On October 31, Mayfair Co. received cash dividends of $0.15 per share from its
investment in Carter Corp.’s common stock. Mayfair owned 1,200 shares of Carter Corp.’s
stock on October 31. The investment is considered available-for-sale. Prepare the investor’s
journal entry to record the receipt of the cash dividends.
163. Marina, Inc., held 1,500 of Navia common stock with a cost of $36,900. These shares
were classified as a long-term available-for-sale investment. It sold the shares on December
13 for $42,100. Prepare the journal entry to record this sale.
164. Columbia Corp. held 1,500 of Vianco common stock with a cost of $74,387. These
shares were classified as a long–term available-for-sale investment. It sold the shares on
December 13 for $55,275. Prepare the journal entry to record this sale.
165. Chrono Co. held bonds of Ayrford Co. with a cost of $125,000 and a year-end fair value
of $123,700. Chrono also held 1,500 shares of Avian common stock with a cost of $25,000
and a year-end fair value of $26,100. These are classified as long-term available-for-sale
securities. Prepare the journal entry to record the market value of the investments as of its
December 31 year-end.
166. Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value of
$127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of $25,000 and
a market value of $24,700. These are classified as long-term available-for-sale securities.
Prepare the journal entry to record the market value of the investments as of December 31.
167. Acadia had no investments prior to the current year. It had the following transactions
involving available-for-sale and held-to-maturity securities during the year. The stock
purchases are considered short-term available-for-sale securities. Prepare journal entries to
record the transactions and events associated with the investment purchases.
Apr. 18 Purchased 5,000 shares of Ace Co. stock at $26.50 per share plus a $350
brokerage fee.
May 01 Purchased $200,000 of Sam’s 7%, two-year bonds payable at par value. Interest
payments are paid semiannually on November 1 and May 1. It is the company’s intent to
hold the bonds until maturity.
Jun. 10 Purchased 4,000 shares of ParCo stock at $48.25 plus a $325 brokerage fee.