111. On October 1, 2012, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation, due in 8
1/2 years. The bonds were purchased at a price of $17,561 plus interest of $300 accrued from July 1, 2012,
the date of the last semi-annual interest payments. Journalize the purchase.
112. On September 1, 2012, Parsons Company purchased $84,000, 10 year, 7% government bonds at 100 plus
accrued interest. The semi-annual interest payment dates are June 30 and December 31. Interest calculations
are done by the month. Required:
(1)
Journalize the entry to record the bond purchase.
(2)
Journalize the receipt of interest on December 31, 2012.
(3)
Journalize the February 1, 2013 sale of the bonds for $82,000 plus accrued interest.
2012
Sept. 1
Interest Receivable
Cash
84,980
* $84,000 x 7% 2/12 = 980
2012
Dec. 31
Interest Receivable
Interest Revenue
1,960
(84,000 x 7% x 6/12)
2013
Feb. 1
Cash
82,490*
84,000
Interest Revenue
(84,000 * 7% x 6/12)
Oct. 1
Investment in Roberts Corp. Bonds
17,561
Interest Receivable
Cash
17,861
113. Journalize the entries to record the following selected bond investment transactions for Southwest Bank:
(1)
Purchased $400,000 of Daytona Beach 5% bonds at 100 plus accrued interest of $4,500.
(2)
Received the first semiannual interest.
(3)
Sold $250,000 of the bonds at 97, plus accrued interest of $1,800.
Bond Investments—Daytona Beach Bonds
400,000
Interest Receivable
4,500
Cash
404,500
Cash
10,000*
Interest Receivable
4,500
Interest Revenue
5,500
Cash
244,300*
Loss on Sale of Investments
7,500
Interest Revenue
1,800
Bond Investments
250,000
*Sale proceeds ($250,000 ´ 97%)
$242,500
Accrued interest
1,800
Total proceeds from sale
$244,300
114. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240
brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas
stock were sold for $28 per share less a $160 brokerage fee.
Required:
Prepare the journal entries for the original purchase, dividend and sale.
115. On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for
$205,000. For the year ending, December 31, McGuire earned income of $48,000 and paid dividends of
$14,000.
Required:
Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income and dividends
received from McGuire.
116. Journalize the entries to record the following selected equity investment transactions completed by Perry
Company during 2012. Perry accounts for this investment using the cost method.:
February 2
Purchased for cash 900 shares of Dexter Co.stock for $54 per share plus a $450 brokerage commission. This
represents a less than 10% ownership interest in the company.
April 16
Received dividends of $0.25 per share on Dexter Co. stock.
June 17
Sold 200 shares of Dexter Co. stock for $70 per share less a $500 brokerage commission.
August 19
Purchased 600 shares of Dexter Co. stock for $65 per share plus a $300 brokerage commission.
November 14
Received dividends of $0.30 per share on Dexter Co. stock.
117. Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1, 2015. Marco
reported net income of $95,000 and declared dividends of $35,000 during 2015. How much would Ramiro
adjust their investment in Marco Company under the equity method?
$38,000
Less: Ramiro’s share of the Marco’s dividend (40% ´ $35,000)
14,000
Feb.
2
49,050*
*(900 shares ´ $54) + $450
Dividend Revenue
*(900 shares ´ $0.25)
June
Cash
13,500*
10,900**
Gain on Sale of Investments
2,600
*(200 shares ´ $70) – $500
Aug.
39,300*
Cash
39,300
Nov.
Cash
Dividend Revenue
118. Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes
reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito
adjust their investment in Reyes Company under the equity method?
119. Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1,
2012. Roberts reported net income of $155,000 and declared dividends of $40,000 during 2012. How would
these events be reported by Sutton using the cost method?
120. Journalize the entries to record the following selected equity investment transactions completed by Flurry
Company during 2012. Flurry’s purchase represents less than 20% of the total outstanding Braxter stock.
February 2
Purchased for cash 500 shares of Braxter Co.stock for $34 per share plus a $250 brokerage commission.
April 16
Received dividends of $0.35 per share on Braxter Co. stock.
June 17
Sold 100 shares of Braxter Co. stock for $40 per share less a $100 brokerage commission.
Investment – Braxter Cao.
17,250*
Cash
17,250
* (500 x 34) + 250
Cash
Dividend Revenue
(500 x $0.35)
Investment – Braxter Co.
3,450**
Gain on Sale of Investments
* (100 x $40) – $100 = $3,900
** $17,250/500 = 34.50 x 100 = $3,450
$30,000
Less: Pepito’s share of the Reyes dividend (40% ´ $15,000)
6,000
Increase in the Investment in Reyes Company Stock
$24,000
121. On March 1, 2011, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for
$325,000. On December 31, 2011, Glory reports net income of $162,000. On January 15, 2012, Glory pays
total dividends to stockholders of $33,000.
Required: Journalize the three transactions described above.
Date
Accounts
DR
CR
122. On January 1, 2015, Valuation Allowance for Trading Investment has a zero balance . On December 31,
2015, the cost of trading securities portfolio was $64,200, and the fair value was $67,000.
Required:
Prepare the December 31, 2015, adjusting journal entry to record the unrealized gain or loss on trading
investments.
2015
Dec.
Valuation Allowance for Trading Investments
2,800
To record increase in fair value of
trading investments.
March 1, 2011
Investment – Glory Corporation
325,000
Cash
325,000
December 31, 2011
Investment – Glory Corporation
56,700
Income of Glory Corporation
56,700
January 15, 2012
Cash
11,550
Investment -Glory Corporation
11,550
123. Skyline, Inc. purchased a portfolio of trading securities during 2012. The cost and fair value of this
portfolio on December 31, 2012, was as follows:
Name
Number of Shares
Total Cost
Total Fair Value
Alcon, Inc.
1,200
$16,000
$15,000
Easton Company
700
23,000
21,500
Panther Company
300
9,000
9,200
Total
$48,000
$45,700
Required:
Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31, 2012.
Where will the information from the journal entry be reported on the financial statements?
124. Skyline, Inc. purchased a portfolio of available-for-sale securities during 2012. The cost and fair value of
this portfolio on December 31, 2012, was as follows:
Name
Number of Shares
Total Cost
Total Fair Value
Blackstone, Inc.
400
$4,000
$5,200
Flagler Company
200
3,000
2,700
Patternson Corporation
600
7,500
9,800
Total
$14,500
$17,700
Required:
Provide the journal entry to record the adjustment of the available-for-sale security portfolio to fair value on December 31, 2012.
Where will the information from the journal entry be reported on the financial statements?
Valuation Allowance for Available-for-Sale Investments
3,200
($17,700 – $14,500)
Investments
($45,700 – $48,000)
125. The income statement for Hudson Company reported net income of $345,000 for the year ended December
31, 2012 before considering the following:
During the year the company purchased trading securities. At year end, the fair value of the investment portfolio
was $23,000 less than cost.
The balance of retained earnings was $823,000 on December 31, 2011. Hudson Company paid $43,000 in
cash dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.
126. The income statement for Dodson Corporation reported net income of $22,400 for the year ended
December 31, 2012 before considering the following:
During the year the company purchased available-for-sale securities. At year end, the fair value of the
investment portfolio was $2,100 more than cost.
The balance of retained earnings was $83,000 on December 31, 2011. Dobson Corporation paid $9,000 in cash
dividends in 2012. Calculate the balance of retained earnings on December 31, 2012.
127. During 2012, its first year of operations, Makala Company purchased two available-for-sale investments as
follows:
Security
Shares Purchased
Cost
Oceanna Company
700
$29,000
Rockledge, Inc.
1,900
41,000
Assume that as of December 31, 2012, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc. stock had a market
value of $20 per share.
Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, 2012, Makala had a net
income of $105,000. No dividends were paid.
Required:
(1)
Prepare the Current Assets section of the balance sheet presentation for the available-for sale securities as of
December 31, 2012.
(2)
Prepare the Stockholders’ Equity section of the balance sheet as of December 31, 2012.
Assets
128. On January 1, 2012, Valuation Allowance for Available-for-Sale Investments had a zero balance. On
December 31, 2012, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200.
Prepare the adjusting entry to record the unrealized gain or loss for available-for-sale investments on December
31, 2012.
129. On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year
ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.
130. Gerardo Company had a net income of $75,000, and other comprehensive income of $12,500 for
2012. On January 1, 2012, the Retained Earnings balance was $525,000 and the Accumulated Other
Comprehensive Income balance was $55,000. Determine the (a) comprehensive income for 2012, (b) Retained
Earnings balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December
31, 2012.
131. Herberto Company had a net income of $74,000, and other comprehensive loss of $8,500 for 2012. On
January 1, 2012, the Retained Earnings balance was $425,000 and the Accumulated Other Comprehensive
Income balance was $52,000. Determine the (a) comprehensive income for 2012, (b) Retained Earnings
balance on December 31, 2012, and (c) the Accumulated Other Comprehensive Income on December 31, 2012.
132. Compare and contrast why companies invest cash in short-term temporary investments vs. long-term
investments.
133. On August 1, 2011, Airport Company sold Paxton Company $1,000,000 of 10-year, 6% bonds, dated July
1 at 100 plus accrued interest. On March 1, 2012, Paxton sold half of the bonds for $520,000 plus accrued
interest. Present entries to record the following transactions:
Paxton
Company:
(1)
Purchase of bonds on August 1, 2011.
(2)
Receipt of first semiannual interest amount on December 31, 2011.
(3)
The sale of the bonds on March 1, 2012.
Interest Receivable ($1,000,000 x 6%) x 1/12
5,000
Cash
1,005,000
Interest Revenue
25,000
Interest Receivable
5,000
Gain on Sale of Investments
20,000
Investment in Airport Co. Bonds
500,000
(a)
$65,500 = $74,000 – $8,500
(b)
$499,000 = $425,000 + $74,000
134. Journalize the entries to record the following selected transactions of Oliver Co.:
(a)
Purchased $100,000 of Kruse Co. 8% bonds at par value plus accrued interest of $2,000.
(b)
Received first semiannual interest payment.
(c)
Sold the bonds at 97 plus accrued interest of $1,500.
135. Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9%
bonds. Present entries to record the following selected transactions:
(a)
Purchased bonds for $465,000.
(b)
Sold half the bonds at 98 plus accrued interest of $4,000. The broker deducted $200 for brokerage fees and taxes, remitting the
balance. The bonds were carried at $479,000 at the time of the sale.
Investment in Benton Corporation Bonds
465,000
Cash
465,000
Cash
248,800
Interest Revenue
4,000
Investment in Benton Corporation Bonds
239,500
Gain on Sale of Investment
5,300
Investment in Kruse Co. Bonds
100,000
Interest Receivable
2,000
Cash
102,000
Cash
4,000
Interest Receivable
2,000
Interest Revenue
2,000
Cash
98,500
Loss on Sale of Investments
3,000
Investment in Kruse Co. Bonds
100,000
Interest Revenue
1,500
136. Prepare the journal entries for the following transactions for Batson Co.
(a)
Batson Co. purchased 1,200 shares of the total of 100,000 outstanding
shares of Michael Corp. stock for $20.75 per share plus a $70 commission.
(b)
Michael’s total earnings for the period are $84,000.
(c)
Michael paid a total of $40,000 in cash dividends to shareholders of record.
137. Prepare the journal entries for the following transactions for Morgan Co.
(a)
Morgan Co. purchased 32,000 shares of the total of 100,000 outstanding shares of Gordon Corp. stock for $10 per share plus a $400
commission.
(b)
Gordon Corp.’s total earnings for the period are $80,000.
(c)
Gordon Corp. paid a total of $45,000 in cash dividends.
Investment in Gordon Corp. Stock
320,400
Cash
320,400
Income of Gordon Corp. ($80,000 x 32%)
25,600
Cash
14,400
Investment in Gordon Corp. Stock ($45,000 x 32%)
14,400
Investment in Michael Corp. Stock
24,970
Cash (1,200 x $20.75 + $70)
24,970
Cash
Dividend Revenue ($40,000 / 100,000 x 1,200)
138. Present entries to record the following selected transactions of Masterson Co.
(a)
Purchased 600 shares of the 100,000 shares outstanding $10 par common shares of Dankin Corporation for $5,100.
(b)
Purchased 3,500 shares of the 10,000 shares no par common shares of Ramon Co. for $45,700. The investment was accounted for by
the equity method.
(c)
Received a cash dividend of $1 per share on the Dankin Corporation stock acquired in (a).
(d)
Received a cash dividend of $2 per share on the Ramon Co. stock acquired in (b).
(e)
Sold 100 shares of the Dankin Corporation shares acquired in (a) for $2,100.
(f)
Dankin Corporation reported net income of $30,000 and Ramon Company’s reported net income was $50,000.
139. Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another
company.
Investment in Dankin Corporation Stock
5,100
Cash
5,100
Investment in Ramon Co. Stock
45,700
Cash
45,700
Cash
Dividend Revenue
Cash
7,000
Investment in Ramon Co. Stock
7,000
Cash
2,100
Investment in Dankin Corporation Stock ($5,100 / 6)
Gain on Sale of Investments
1,250
Investment in Ramon Co. Stock
17,500
Income of Ramon Co. ($50,000 x 35%)
17,500
140. Discuss the similarities and differences in reporting trading securities, available-for-sale securities and
held-to-maturity securities.
141. The cost and fair value of the trading securities held by AdBrand Company as of December 31, 2012 are
as follows:
Name
Number of Shares
Cost
per Share
Fair Value
per Share
Total Cost
Total
Fair Value
Alcorn, Inc.
1,200
$10.50
$11.05
Bristen Corp.
600
9.00
9.85
Geston Company
900
4.10
4.00
Quanter Company
400
7.35
6.82
Total
Required:
(1) Complete the table above to find the total cost and fair value for the company’s trading securities portfolio.
(2) Calculate and record the required December 31, 2012 adjustment.
(3) Explain how the adjustment from step (2) is reported on AdBrand’s 2012 financial statements.
Alcorn, Inc.
1,200
$10.50
$11.05
$12,600
$13,260
Bristen Corp.
600
9.00
9.85
5,400
5,910
Geston Company
4.10
4.00
3,690
3,600
Quanter Company
400
7.35
6.82
2,940
2,728
Total
$24,630
$25,498
Accounts
Valuation Allowance for Trading Investments
868*
Unrealized Gain on Trading Investments
868
*$ 25,498 -$ 24,630 = $ 868 Unrealized Gain
142. Following is data for the available-for-sale securities held by AdBrand Company as of December 31, 2012.
Name
Number of Shares
Cost
per Share
Fair Value
per Share
Total Cost
Total
Fair Value
Capstone, Inc.
1,200
$15.00
$15.40
Dayton Corp.
800
8.00
8.25
Huddle Company
700
14.10
13.00
Stanton Company
900
12.35
10.77
Total
Required:
(1) Complete the table above to find the total cost and fair value for the company’s available-for-sale securities portfolio.
(2) Calculate and record the required December 31, 2012 adjustment.
(3) Explain how the adjustment from step (2) is reported on AdBrand’s 2012 financial statements.
Capstone, Inc.
1,200
$15.00
$15.40
$18,000
$18,480
Dayton Corp.
800
8.00
8.25
6,400
6,600
Huddle Company
700
14.10
13.00
9,870
9,100
Stanton Company
900
12.35
10.77
11,115
9,693
Total
$45,385
$43,873
Accounts
(2)
Unrealized Loss on Available-for-Sale Investments
1,512
Valuation Allowance for Available-for-Sale Investments
1,512
$45,385 – $43,873 = $1,512 Unrealized Loss
143. (1) Discuss factors contributing to the trend to fair value accounting.
(2) What are some of the disadvantages associated with using fair value?
144. Newville Corporation reported net income of $50,000 in 2015. They have 10,000 shares of $100 par, 6%
preferred stock and 50,000 shares of $2 common stock outstanding. During 2012 Newville paid the preferred
stockholder’s a $6 per share dividend and also paid $30,000 to common shareholders. The market value of
Newville’s stock is: Preferred – $105 and Common – $10.
(1) Calculate Newville’s dividend yield.
(2) Why does the dividend yield vary widely across firms?
145. Mangrill, Inc. reported net income for the year ending December 31, 2012 of $483,500. Dividends paid
during the year totaled $42,900. The company holds available-for-sale securities with an original cost of
$162,000 and a fair value of $171,000 at the end of the year. They also hold trading securities with an original
cost of $150,000 and a fair value of $147,000. Retained Earnings on January 1, 2012 was $736,400 and
Accumulated Other Comprehensive Income on January 1, 2012 was $16,200.
Required:
Calculate the following balances to be reported in the financial statements dated December 31, 2012.
(1) Valuation Allowance for Available-for-Sale securities
(2) Comprehensive Income
(3) Retained Earnings
(4) Accumulated Other Comprehensive Income
146. What is comprehensive income? How is it calculated? What are some examples of items included in
other comprehensive income? Where is comprehensive income reported?