Appendix D – Investments
D-18 Financial Accounting, 5e
Exercise D-9 (LO D-4)
1. 10% of the common stock of Beta.
2. 40% of the bonds of Gamma.
4. 15% of the bonds of Epsilon.
5. 25% of the common stock of Zeta.
6. 60% of the bonds of Eta.
7. 100% of the common stock of Theta.
Appendix D – Investments
Exercise D-10 (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Amortization
of Discount
(5)
Amortized
Cost
Face Amount
Amortized Cost
Prior Amortized
Requirement 2
159,869
159,869
Exercise D-11 (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Amortization
of Premium
(5)
Amortized
Cost
Face Amount
Amortized Cost
Prior Amortized
Requirement 2
January 1
Investments
549,001
Cash
549,001
(Purchase bonds)
June 30
Cash ($500,000 × 7% × ½)
December 31
Cash ($500,000 × 7% × ½)
Appendix D – Investments
Exercise D-12 (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Amortization
of Discount
(5)
Amortized
Cost
Face Amount
Amortized Cost
Prior Amortized
Requirement 2
January 1
Investments
747,968
Cash
747,968
(Purchase bonds)
June 30
Cash ($800,000 × 8% × ½)
32,000
Investments (difference)
December 31
Cash ($800,000 × 8% × ½)
32,000
Requirement 3
December 31
Unrealized Holding Loss–Other Comprehensive Income
1,360
Appendix D – Investments
D-22 Financial Accounting, 5e
Requirement 4
Sales Revenue
$ 2,600,000
Operating expenses
(1,400,000)
Interest revenue*
Net income
Other comprehensive income:
Comprehensive income
Appendix D – Investments
PROBLEMS: SET A
Problem D-1A (LO D-2)
Requirement 1
January 2
Debit
Credit
Investments
105,000
Cash
105,000
(Purchase 1,500 shares common stock)
February 14
Investments
7,200
Cash
(Purchase 600 shares preferred stock)
May 15
Cash (300 shares × $62)
18,600
Loss (difference)
2,400
Investments (300 shares × $70)
21,000
(Sell 300 shares common stock below original
cost amount)
December 30
Cash
Problem D-1A (concluded)
Requirement 1 (concluded)
December 31
Investments
3,600
Unrealized Holding Gain–Net Income
3,600
Unrealized Holding Gain–Net Income
1,200
Requirement 2
The balance of the Investments account on December 31 is $96,000, equal to the
Appendix D – Investments
Problem D-2A (LO D-3)
($ in millions)
Purchase:
Debit
Credit
Investments
178
Cash
Investments
Equity Income
(Earn equity income)
Dividends:
Cash
9.35
Investments
9.35
(Receive cash dividends)
($9.35 = $1.10 × 34 million shares × 25%)
Appendix D – Investments
D-26 Financial Accounting, 5e
Problem D-3A (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Amortization
of Discount
(5)
Amortized
Cost
Face Amount
Amortized Cost
Prior Amortized
Requirement 2
January 1
Investments
133,984
Cash
133,984
(Purchase bonds)
June 30
Cash ($150,000 × 6% × ½)
(Receive semiannual interest revenue)
December 31
Investments (difference)
(Receive semiannual interest revenue)
Appendix D – Investments
Requirement 3
December 31
Cash
145,000
Requirement 4
Bond prices move in the opposite direction of market interest rates. Since bond prices
Appendix D – Investments
D-28 Financial Accounting, 5e
Problem D-4A (LO D-5)
Requirement 1
Investments ……………………………………………….. 152,000
Requirement 3
Cash ($180,000 × 8% × ½) ………………………….. 7,200
Investment …………………………………………………. 420
Interest revenue ([$152,000 + 400] × 10% × ½) 7,620
(Receive semiannual interest revenue)
Requirement 4
Since these are held-to-maturity securities, Justin Investor reports its investment
in the December 31, balance sheet at its amortized cost – that is, its book value:
Requirement 5
Investments ($160,000 − $152,820)
7,180
Unrealized Holding Gain–Other Comprehensive Income
7,180
Appendix D – Investments
PROBLEMS: SET B
Problem D-1B (LO D-2)
Requirement 1
February 2
Debit
Credit
Investments
52,500
Cash
52,500
(Purchase 1,500 shares common stock)
February 4
Investments
Cash
(Purchase 600 shares preferred stock)
July 15
Cash (400 shares ×$40)
16,000
Investments (400 shares × $35)
14,000
Gain (difference)
cost amount)
November 30
Cash
2,290
Dividend Revenue
2,290
(Receive cash dividends)
(1,100 common shares × $1.10) +
(600 preferred shares × $1.80)
Appendix D – Investments
Problem D-1B (concluded)
Requirement 1 (concluded)
December 31
Unrealized Holding Loss–Net Income
4,400
December 31
Requirement 2
The balance of the Investments account on December 31 is $52,100, equal to the
Appendix D – Investments
Problem D-2B (LO D-3)
($ in millions)
Purchase:
Debit
Credit
Investments
52
Cash
52
(Purchase 30% of 10 million shares
common stock)
Equity Income
Dividends:
Investments
Appendix D – Investments
D-32 Financial Accounting, 5e
Problem D-3B (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Amortization
of Discount
(5)
Amortized
Cost
Face Amount
Amortized Cost
Prior Amortized
Requirement 2
January 1
Investments
419,422
Cash
419,422
June 30
Cash ($450,000 × 7% × ½)
Appendix D – Investments
Requirement 3
December 31
Appendix D – Investments
Problem D-4B (LO D-5)
Requirement 1
Investments ……………………………………………….. 124,728
Cash ………………………………………………………. 124,728
(Purchase bonds)
Requirement 2
Cash ($130,000 × 7% × ½) ………………………….. 4,550
Requirement 4
Since these are held-to-maturity securities, Tsunami Sushi reports its
investment in the December 31, balance sheet at its amortized cost – that is, its
book value:
Requirement 5
Unrealized Holding Loss–Net Income
1,624
1,624