ACCT 3305 Exam 1 - 14 & 17

On January 1, 2020, Cheyenne Corporation redeemed $410,000 of bonds at 97. At the time of redemption, the unamortized premium was $12,300. Prepare the corporation's journal entry to record the reacquisition of the bonds.

(DR) BP - 410,000 (DR) Premium on BP - 12,300 (CR) Gain onRedemption on Bonds - 24,600 [($410,000 + $12,300) - $397,700] (CR) Cash - 397,700 ($410,000 × 0.97)

Marigold Corporation purchased trading investment bonds for $41,000 at par. At December 31, Marigold received annual interest of $1,640, and the fair value of the bonds was $38,500. Prepare Marigold' journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

(DR) Debt Investment - 41,000 (CR) Cash - 41,000 (DR) Cash -1,640 (CR) Intrest Revenue - 1,640 (DR)Unrealized holding or Gain - Income - 2,500 (CR) Fair Value Adjustment - 2,500 ($41,000 - $38,500)

Splish Corporation purchased on January 1, 2020, as a held-to-maturity investment, $57,000 of the 8%, 6-year bonds of Harrison, Inc. for $62,674, which provides a 6% return. The bonds pay interest semiannually. Prepare Splish's journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used.

(DR) Debt Investment - 62,674 (CR) Cash - 62,674 (CR) Cash - 2,280 ($57,000 x 0.08 x 6/12) (DR) Debt Investment - 400 (CR) Intrest Revenue - 1,880 ($62,674 x 0.06 x 6/12)

Wildhorse Company purchased, on January 1, 2020, as an available-for-sale security, $69,000 of the 11%, 5-year bonds of Chester Corporation for $64,146, which provides an 13% return. Prepare Wildhorse's journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $65,550.

(DR) Debt Investment - 64,146 (CR) Cash - 64,146 (DR) Debt Investment - 749 (DR) Cash - 7,590 ($69,000 x 0.11) (CR) Interest Revenue - 8,339 ($64,146 x 0.13) (DR) Fair Value Adjustment - 655 (CR) Unrealized Holding Gain or Loss - Equity - 655 [($64,146 + $749) - $65,550]

Bridgeport Company purchased, on January 1, 2020, as a held-to-maturity investment, $74,000 of the 8%, 5-year bonds of Chester Corporation for $68,389, which provides an 10% return. Prepare Bridgeport's journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

(DR) Debt Investment - 68,389 (CR) Cash - 68,389 (DR) Cash - 5,920 ($74,000 x 0.08) (DR) Debt Investment - 919 (CR) Interest Revenue - 6,839 ($68,389 x 0.10)

Blossom Corporation purchased 380 shares of Sherman Inc. common stock for $12,900 (Blossom does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. Assume the stock is nonmarketable. Prepare Blossom's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

(DR) Equity Investment - 12,900 (CR) Cash - 12,900 (DR) Cash - 1,235 (CR) Dividend Revenue -1,235 (380 x $3.25) No Fair Value Adjustment

Ivanhoe Corporation purchased 370 shares of Sherman Inc. common stock for $13,100 (Ivanhoe does not have significant influence). During the year, Sherman paid a cash dividend of $3.00 per share. At year-end, Sherman stock was selling for $37.50 per share. Prepare Ivanhoe's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

(DR) Equity Investment - 13,100 (CR) Cash - 13,100 (DR) Cash - 1,110 (CR) Dividend Revenue - 1,110 (370 x $3.00) (DR) Fair value adjustment - 775 (CR) Unrealized holding gain or loss-Income - 775 [(370 x $37.50) - $13,100]

Tamarisk Company has a stock portfolio valued at $3,800. Its cost was $3,200. If the Fair Value Adjustment account has a debit balance of $260, prepare the journal entry at year-end.

(DR) Fair value adjustment - 340 ($3,800 − $3,200) (CR) unrealized holding gain or loss-income - 340

Cullumber Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $79,200. Cullumber determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $70,800. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

(DR) allowance for doubtful account - 8,400 (CR) Debt Investments - 8,400

Ivanhoe Company loans Sarasota Company $1,810,000 at 6% for 3 years on January 1, 2020. Ivanhoe intends to hold this loan to maturity and has the financial ability to do so. The fair value of the loan at the end of each reporting period is as follows. December 31, 2020 - $1,856,000 December 31, 2021 - 1,829,000 December 31, 2022 - 1,810,000 Prepare the journal entry(ies) at December 31, 2020, and December 31, 2022, for Ivanhoe related to these bonds, assuming (a) it does not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1.

(a) December 31, 2020 and 2022 Interest Receivable = ($1,810,000 x 0.06) = $108,600 (b)December 31, 2020 Interest Receivable = ($1,810,000 x 0.06) = $108,600 Debt Investments = ($1,856,000 − $1,810,000) = $46,000 December 31, 2022Interest Receivable = ($1,810,000 x 0.06) = $108,600 Debt Investments = ($1,829,000 − $1,810,000) = $19,000

Presented below are two independent cases related to available-for-sale debt investments. Case 1 Case 2 Amortized cost $37,020 $101,200 Fair value 27,060 110,650 Exp. credit losses. 21,600. 93,050 For each case, determine the amount of impairment loss, if any.

Case 1: $9,960 The impairment loss is $9,960 ($37,020 - $27,060). The loss is limited by the lower of amortized cost or fair value. Case 2: $0 No impairment results, because the fair value is greater than amortized cost.

Stellar Corporation issued $560,000 of 7% bonds on November 1, 2020, for $601,659. The bonds were dated November 1, 2020, and mature in 10 years, with interest payable each May 1 and November 1. Stellar uses the effective-interest method with an effective rate of 6%. Prepare Stellar's December 31, 2020, adjusting entry.

Dec 31 (DR) Interest Expense - 6,017 ($601,659 x 0.06 x 2/12) (DR) Premium on BP - 516 (CR) Interest Payable - 6,533 ($560,000 x 0.07 x 2/12)

Cheyenne Company invests $11,300,000 in 6% fixed rate corporate bonds on January 1, 2020. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $11,955,000. Interest is paid on January 1. Prepare journal entries for Cheyenne Company to (a) record the transactions related to these bonds in 2020, assuming Cheyenne does not elect the fair option; and (b) record the transactions related to these bonds in 2020, assuming that Cheyenne Company elects the fair value option to account for these bonds.

Interest Receivable = ($11,300,000 x 0.06) = 678,000 Fair Value Adjustment = ($11,955,000 - $11,300,000) = 655,000 Interest Receivable = ($11,300,000 x 0.06) = 678,000 Debt Investment = ($11,955,000 - $11,300,000) = 655,000

Cheyenne Corporation issues $480,000 of 8% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%

Issue price of the bonds: $420,181 Present value of the principal ($480,000 x 0.37689) Present value of the interest payments ($19,200* x 12.46221) = 420,181

The Martinez Company issued $310,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 96. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Martinez Company records straight-line amortization semiannually.

Jan 1 (DR) Cash - 297,600 ($310,000 x 0.96) (DR) Discount on Bonds Payable - 12,400 ($310,000 - $297,600) (CR) Bonds Payable - 310,000 July 1 (DR) Interest Expense - 16,740 ($15,500 + $1,240) (CR) Discount on Bonds Payable - 1,240 ($12,400 x 1/10) (CR) Cash - 15,500 ($310,000 x 0.10 x 6/12) Dec 31 (DR) Interest Expense - 16,740 ($15,500 + $1,240) (CR) Discount on Bonds Payable - 1,240 ($12,400 x 1/10) (CR) Cash - 15,500 ($310,000 x 0.10 x 6/12)

The Carla Company issued $300,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 104. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Carla Company records straight-line amortization semiannually.

Jan 1 (DR) Cash - 312,000 ($300,000 x 1.04) (CR) Premium on Bonds Payable - 12,000 (CR) Bonds Payable - 300,000 July 1 (DR) Interest Expense - 13.800 (DR) Premium on Bonds Payable - 1,200 ($12,000 x 1/10) (CR) Cash - 15,000 ($300,000 x 0.10 x 6/12) Dec 31 (DR) Interest Expense - 13,800 (CR) Premium on Bonds Payable - 1,200 ($12,000 x 1/10) (CR) Interest Payable - 15,000 ($300,000 x 0.10 x 6/12)

The Sunland Company issued $390,000 of 9% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Sunland's journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Jan 1 (DR) Cash - 390,000 (CR) Bonds Payable - 390,000 July 1 (DR) Interest Expense - 17,550 (CR) Cash - 17,550 ($390,000 x 9% x 6/12) Dec 31 (DR) Interest Expense - 17,550 (CR) Interest Payable - 17,550 ($390,000 x 0.09 x 6/12)

Marin Corporation issued a 4-year, $72,000, zero-interest-bearing note to Brown Company on January 1, 2020, and received cash of $47,429. The implicit interest rate is 11%. Prepare Marin's journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

Jan 1 (DR) Cash - 47.429 (CR) Discount on NP - 25,571 (CR) NP - 72,000 Dec 31 (DR) Interest Expense - 5,217 (CR) Discount on NP - 5,217 ($47,429 x 0.11)

Flounder, Inc. issued a $60,000, 4-year, 8% note at face value to Flint Hills Bank on January 1, 2020, and received $60,000 cash. The note requires annual interest payments each December 31.Prepare Flounder's journal entries to record (a) the issuance of the note and (b) the December 31 interest payment.

Jan 1 (DR) Cash - 60,000 (CR) NP - 60,000 Dec 31 (DR) Interest Expense - 4,800 (CR) Cash - 4,800 ($60,000 x 0.08)

On January 1, 2020, Pronghorn Corporation issued $660,000 of 9% bonds, due in 8 years. The bonds were issued for $624,235, and pay interest each July 1 and January 1. Pronghorn uses the effective-interest method. Prepare the company's journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%.

Jan 1 (DR) Cash - 624,235 (DR) Discount on BP - 35,765 (CR) BP - 660,000 July 1 (DR) Interest Expense - 31,212 ($624,235 x 0.10 x 6/12) (CR) Discount on BP - 1,512 (CR) Cash - 29,700 ($660,000 x 0.09 x 6/12) Dec 31 (DR) Int Expense - 31,212 ($625,747* x 0.10 x 6/12) (CR) Discount on BP - 1,512 (CR) Interest payable - 29,700 ($660,000 x 0.09 x 6/12)

On January 1, 2020, Culver Corporation issued $700,000 of 9% bonds, due in 8 years. The bonds were issued for $740,784, and pay interest each July 1 and January 1. The effective-interest rate is 8%. Prepare the company's journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Culveruses the effective-interest method.

Jan 1 (DR) Cash - 740,784 (CR) Bonds Payable - 700,000 (DR) Premium on BP - 40,784 July 1 (DR) Interest Expense - 29,631 ($740,784 x 0.08 x 6/12) (DR) Premium on BP - 1,869 (CR) Cash - 31,500 ($700,000 x 0.09 x 6/12) Dec 31 (DR) Interest Expense - 29,631 ($738,915* x 0.08 x 6/12) (DR) Premium on BP - 1,869 (CR) Interest Payable - 31,500 ($700,000 x 0.09 x 6/12)

Sweet Corporation issued a 4-year, $36,000, 4% note to Greenbush Company on January 1, 2020, and received a computer that normally sells for $27,253. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 12%. Prepare Sweet's journal entries for (a) the January 1 issuance and (b) the December 31 interest.

Jan 1 (DR) Equipment - 27,253 (DR) Discount on NP - 8,747 (CR) NP - 36,000 Dec 31 (DR) Interest Expense - 3,270 ($27,253 x 0.12) (CR) Discount on NP - 1,440 (CR) Cash - 1,830 ($36,000 x 0.04)

Carla Corporation issued $612,000 of 5% bonds on May 1, 2020. The bonds were dated January 1, 2020, and mature January 1, 2023, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Carla's journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

May 1 (DR) Cash - 622,200 (CR) Bonds Payable - 612,000 (CR) Interest Expense - 10,200 ($612,000 x 0.05 x 4/12) July 1 (DR) Interest Expense - 15,300 (CR) Cash - 15,300 ($612,000 x 0.05 x 6/12) Dec 31 (DR) Interest Expense - 15,300 (CR) Interest Payable - 15,300 ($612,000 x 0.05 x 6/12)

Sandhill Corporation purchased for $307,000 a 30% interest in Murphy, Inc. This investment enables Sandhill to exert significant influence over Murphy. During the year, Murphy earned net income of $198,000 and paid dividends of $55,000 .Prepare Sandhill's journal entries related to this investment.

To record purchase: (DR) Equity Investments - 307,000 (CR) Cash - 307,00 To record Net Income: (DR) Equity Investments - 59,400 (CR) Investment Income - 59,400 (30% x $198,000) To record Dividend Revenue: (DR) Cash - 16,500 (CR) Equity Investment - 16,500 (30% x $55,000)

Sage Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 10% and has a carrying value of $12,000. At year-end, Sage's borrowing rate (credit risk) has declined; the fair value of the note payable is now $13,600. Determine the unrealized holding gain or loss on the note and Journal Entry.

Unrealized Holding Gain or Loss - (-1,600) (DR)Unrealized Holding Gain or Loss- Equity - 1,600 (CR) NP - 1,600 Fair Value - Book Value = $13,600 - $12,000 = $1,600 unrealized holding loss.

Ivanhoe Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $19,000. At year-end, Ivanhoe's borrowing rate (credit risk) has declined; the fair value of the note payable is now $20,800. Determine the unrealized holding gain or loss on the note and Journal Entry.

Unrealized Holding Gain or Loss - (-1,800) (DR) Unrealized Holding Gain or Loss - Equity 1,800 (CR) NP - 1,800 Fair Value - Book Value = $20,800 - $19,000 = $1,800 unrealized holding loss.

The following information relates to Concord Co. for the year ended December 31, 2020: net income $1,242 million; unrealized holding loss of $11.5million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $53 million on December 31, 2019. Assuming no other changes in accumulated other comprehensive income. Determine (a) other comprehensive income for 2020, (b) comprehensive income for 2020, and (c) accumulated other comprehensive income at December 31, 2020.

a. Other comprehensive Income - (-11.5 mill) b. comprehensive income for 2020 - 1230.5 mill (NI - unrealized holding) c. accumulated other comprehensive income - 41.5 mill (AOCI - unrealized holding)