Chapter 15: Investments and Fair Value Accounting
117.
On May 1, Cedar Inc. purchases $150,000 of 10-year, Knox Corporation 8% bonds dated March 1 at 100
plus
accrued interest. What entry would Cedar record when receiving its semiannual interest on March 1?
118.
On October 1, 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, the date of the
last
semiannual interest payments. Journalize the purchase.
Chapter 15: Investments and Fair Value Accounting
119.
On September 1, 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.
(a)
Journalize the entry to record the bond purchase.
(b)
Journalize the receipt of interest on December 31 of the first year.
(c)
Journalize the sale of the bonds on February 1 of the second year for
$82,000
plus accrued interest.
Chapter 15: Investments and Fair Value Accounting
120.
Journalize the entries to record the following selected bond investment transactions for Southwest Bank:
(a)
Purchased $400,000 of Daytona Beach 5% bonds at 100 plus accrued
interest of $4,500.
(b)
Received the first semiannual interest.
(c)
Sold $250,000 of the bonds at 97, plus accrued interest of $1,800.
Chapter 15: Investments and Fair Value Accounting
121.
On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100
plus
accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest.
Present
entries to record the following transactions:
Bee Company:
(a)
Purchase of bonds on August 1, Year 1.
(b)
Receipt of first semiannual interest amount on December 31, Year 1.
(c)
The sale of the bonds on March 1, Year 2.
Chapter 15: Investments and Fair Value Accounting
122.
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.
123.
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 at 93 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.
Chapter 15: Investments and Fair Value Accounting
124.
On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage
fee. This purchase represents less than 20% ownership of the Lucas Company. 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.
Prepare the journal entries for the original purchase, dividend, and sale.
Chapter 15: Investments and Fair Value Accounting
125.
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.
Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income and dividends
received from McGuire.
Chapter 15: Investments and Fair Value Accounting
126.
Journalize the entries to record the following selected equity investment transactions completed by Perry
Company
during the current year. 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.
Chapter 15: Investments and Fair Value Accounting
127.
Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net
income of $95,000 and declared dividends of $35,000 during the year. How much would Ramiro adjust its
investment in Marco Company under the equity method?
128.
Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net
income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust
its
investment in Reyes Company under the equity method?
129.
Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net
income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by
Sutton using the cost method?
Chapter 15: Investments and Fair Value Accounting
130.
Journalize the entries to record the following selected equity investment transactions completed by Flurry Company
during the current year. 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.
Chapter 15: Investments and Fair Value Accounting
131.
On March 1, Year 1, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for
$325,000. On December 31, Year 1, Glory reports net income of $162,000. On January 15, Year 2, Glory
pays
total dividends to stockholders of $33,000.
Journalize the three transactions.
Date
Description
Debit
Credit
Chapter 15: Investments and Fair Value Accounting
132.
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’s paid a total of $40,000 in cash dividends to shareholders of record.
Chapter 15: Investments and Fair Value Accounting
133.
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.
Chapter 15: Investments and Fair Value Accounting
134.
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.
Chapter 15: Investments and Fair Value Accounting
135.
Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another
company.
136.
On January 1, the Valuation Allowance for Trading Investments account has a zero balance. On December 31,
the cost of trading securities portfolio was $64,200, and the fair value was $67,000.
Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments.