Reporting and Analyzing Investments
FOR INSTRUCTOR USE ONLY
H-41
Solution 171 (5 min.)
Jan. 1 Stock Investments ……………………………………………… 7,050
Cash ………………………………………………………… 7,050
June 1 Cash (600 × $0.40) ……………………………………………. 240
Dividend Revenue ……………………………………… 240
Sept. 15 Cash ………………………………………………………………….. 3,400
Loss on Sale of Stock Investments ……………………….. 125*
Stock Investments ……………………………………… 3,525
[300 × ($7,050 ÷ 600)]
*[$3,400 − ($7,050 × 300/600)]
Be. 172
On January 1, 2017, Redwood Creek Company purchased 5,000 shares of Monticello Company
stock for $300,000. Redwood Creek’s investment represents 30 percent of the total outstanding
shares of Monticello. During 2017, Monticello paid total dividends of $100,000 and reported net
income of $290,000. What revenue does Redwood report related to this investment and what is
the amount to be reported as an investment in Monticello stock at December 31.
Be. 173
On January 1, Ollinger Company purchased a 25% equity investment in Fava Company for
$300,000. At December 31 Fava declared and paid a $20,000 dividend and reported net income
of $120,000.
Instructions
(a) Journalize the transactions
(b) Determine the amount to be reported as an investment in Fava stock at December 31.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
H-42
Be. 174
At January 1, 2017, the available-for-sale securities portfolio held by Darma Corporation consisted
of the following investments:
1. 2,500 shares of H2 common stock purchased for $43 per share.
2. 1,500 shares of Krypto common stock purchased for $50 per share.
At December 31, 2017, the fair values per share were H2 $36 and Krypto $54.
Instructions
(a) Prepare a schedule showing the cost and fair value of the portfolio at December 31, 2017.
(b) Prepare the adjusting entry to report the portfolio at fair value at December 31, 2017.
Reporting and Analyzing Investments
FOR INSTRUCTOR USE ONLY
H-43
EXERCISES
Ex. 175
Le Tourneau Company had the following transactions pertaining to debt investments.
Jan. 1 Purchased 80, 6%, $1,000 Lido Company bonds for $80,000 cash.
July 1 Sold 40 Lido Company bonds for $42,400.
Instructions
Journalize the entries for the purchase and sale of the Lido Company bonds.
Ex. 176
Trafton Company had the following transactions pertaining to debt invesments.
2017
Jan. 1 Purchased 60, 6%, $1,000 Hammond Company bonds for $60,000 cash. Interest is
payable annually on January 1.
Dec. 31 Accrued interest on Hammond Company bonds.
2018
Jan. 1 Received interest from Hammond Company bonds.
Jan. 1 Sold 30 Hammond Company bonds for $32,000.
Instructions
Journalize the transactions for 2017 and 2018.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
H-44
Ex. 177
The following transactions were made by Coral Company. Assume all investments are short-term.
June 2 Purchased 600 shares of Schmidt Corporation common stock for $45 per share.
July 1 Purchased 210 Dantzler Corporation bonds for $210,000.
30 Received a cash dividend of $2.25 per share from the Schmidt Corporation.
Sept. 15 Sold 120 shares of Schmidt Corporation stock for $50 per share.
Dec. 31 Received semiannual interest check for $9,240 from the Dantzler Corporation.
31 Received a cash dividend of $2.25 per share from the Schmidt Corporation.
Instructions
Journalize the transactions.
Reporting and Analyzing Investments
FOR INSTRUCTOR USE ONLY
H-45
Ex. 178
Eaton Company had the following transactions pertaining to its short-term stock investments.
Jan. 1 Purchased 900 shares of Stafford Company stock for $11,880 cash.
June 1 Received cash dividends of $0.60 per share on the Stafford Company stock.
Sept. 15 Sold 450 shares of the Stafford Company stock for $5,200.
Dec. 1 Received cash dividends of $0.60 per share on the Stafford Company stock.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
H-46
Ex. 179
Grafton Company had the following transactions pertaining to its short-term stock investments.
Jan. 1 Purchased 2,000 shares of Hortez Company stock for $101,100 cash.
June 1 Received cash dividends of $2.70 per share on the Hortez Company stock.
Sept. 15 Sold 1,000 shares of the Hortez Company stock for $49,600.
Dec. 31 The fair values of the securities were $50,800. Prepare the adjusting entry to report
the portfolio at fair value.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.
Reporting and Analyzing Investments
Ex. 180
Crespo Company purchased 42,000 shares of common stock of the Paive Corporation as an
investment for $1,000,000. During the year, Paive Corporation reported net income of $400,000
and paid dividends of $100,000.
Instructions
(a) Assuming that the 42,000 shares represent a 15% interest in Paive Corporation:
1. Prepare the journal entry to record the investment in Paive stock.
2. Prepare any entries that Crespo Company should make in accounting for its investment
in Paive stock during the year.
3. What is the balance of the Stock Investments account on Crespo Company’s books at
the end of the year?
(b) Repeat requirement (a) above except assume that the 42,000 shares represent a 25%
interest in Paive Corporation.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
H-48
Solution 180 (16-21 min.)
Ex. 181
Information pertaining to stock investments in 2017 by Com-ex Corporation follows:
Acquired 15% of the 200,000 shares of common stock of Buffalo Company at a total cost of $9 per
share on January 1, 2017. On July 1, Buffalo Company declared and paid a cash dividend of
$1.90 per share. On December 31, Buffalo reported net income was $675,000 for the year.
Obtained significant influence over Eta Company by buying 30% of Eta’s 120,000 outstanding
shares of common stock at a total cost of $25 per share on January 1, 2017. On June 15, Eta
Company declared and paid a cash dividend of $2.50 per share. On December 31, Eta‘s reported
net income was $330,000.
Instructions
Prepare all necessary journal entries for 2017 for Com-ex Corporation.
Reporting and Analyzing Investments
FOR INSTRUCTOR USE ONLY
H-49
Solution 181 (15-20 min.)
Ex. 182
Sandafor Company had these transactions pertaining to stock investments:
Feb 1 Purchased 2,400 shares of BFF common stock (2% of outstanding shares) for
$16,500 cash.
July 1 Received cash dividends of $0.80 per share on BFF common stock.
Sept. 1 Sold 800 shares of BFF common stock for $7,900
Dec. 1 Received cash dividends of $.80per share on BFF common stock.
Instructions
Journalize the transactions.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
H-50
Solution 182 (8 min.)
Ex. 183
PWAT Inc. had these transactions pertaining to investments in common stock:
Jan 1 Purchased 2,000 shares of Pasco Corporation common stock (5% of outstanding
shares) for $96,500 cash.
July 1 Received a cash dividend of $1.70 per share.
Dec. 1 Sold 800 shares of Pasco Corporation common stock for $40,200.
31 Received a cash dividend of $1.70 per share.
Instructions
Journalize the transactions.
Reporting and Analyzing Investments
FOR INSTRUCTOR USE ONLY
H-51
Solution 183 (8 min.)
Ex. 184
Ultra Cosmetics acquired 10% of the 200,000 shares of common stock of Kardashian Fashion at a
total cost of $14 per share on March 18, 2017. On June 30 Kardashian declared and paid a
$96,000 dividend. On December 31 Kardashian reported net income of $244,000 for the year. At
December 31 the market price of Kardashian Fashion was $16 per share. The stock is classified
as available-for-sale.
Instructions
Prepare all the necessary entries for 2017 for Ultra Cosmetics.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
H-52
Ex. 185
La Bouisse Inc. obtained significant influence over E-Stock Corporation by buying 40% of E-Stock
30,000 outstanding shares common stock at a total cost of $11 per share on January 1, 2017. On
June 15 E–Stock declared and paid a cash dividend of $32,000. On December 31 E-Stock
reported a net income of $120,000 for the year.
Instructions
Prepare all the necessary journal entries for 2017 for La Bouisse Inc.
Ex. 186
Cantor Corporation’s balance sheet at December 31, 2016, showed the following:
Short-term investments, at fair value $46,500
Cantor Corporation’s trading portfolio of stock investments consisted of the following at December
31, 2016:
Investment Number of Shares Cost
Interstate Common Stock 200 $30,000
Danforth Preferred Stock 400 6,000
Georgia Common Stock 300 9,000
$45,000
During 2017, the following transactions took place:
Feb. 5 Sold 50 shares of Interstate common stock for $7,900.
Mar. 30 Purchased 25 shares of Georgia common stock for $850.
Sept. 9 Purchased 50 shares of Georgia common stock for $2,000.
At year end on December 31, 2017, the fair values per share were:
Fair Value Per Share
Interstate Common Stock $151.00
Danforth Delta Preferred Stock $ 13.00
Georgia Common Stock $ 33.00