Ch 15

A company has an investment in 10% bonds with a par value of $162,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 ( the company's year-end) would be:

$4,050 explanation: $162,000X10%X3/12 year= $4,050

Smith Corp. buys $450,000 of Rock Company's 6%, %-year bonds payable at par value on September 1. Interest payments are made semiannually. Smith plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:

A debit to Long-Term Investments-HTM $450,000

Beverly Corp. purchases 4,000 shares of Golf Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gold had 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Beverly's entry to record the purchase transaction would include a:

Debit to Long-Term Investment-AFS for $150,000

At the end of the accounting period, the owners of debt securities:

Must record any interest earned on the debt securities during the period

At acquisition, debit securities are:

Recorded at cost

Penny Corp. has invested in 10% of the outstanding stock of Ted Corporation. Penny intends to actively manage this investment for profit. This investment is classified as:

a treading security

On February 15, Fed Company buys 8,000 shares of Barcelo Corp. common stock at $29.03 per share plus brokerage fee of $450. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Barcelo Corp. declares a dividend of $1.40 per share payable to stockholders or record on April 15. Fed Company received the dividend on April 15 and ultimately sells half of the Barcelo Corp. stock on November 17 of the current year for $29.80 per share less a brokerage fee of $300. The journal entry to record the sale of the 4,000 share of stock on November 17 is

Debit Cash $118,900; credit Long-Term- Investments-AFS $116,345; credit Gain on Sale of Long-Term Investment $2,555 explanation: Cash received=[(4,000X$29.80)-300]=$118,900 Credit to LTI=[(8,000X$29.03)+$450]X1/2=$116,345 Gain=$118,900-$116,345=$2,555

Smith Corp. buys $490,000 of Rock Company's 8%, 5-year bonds payable to par value of September 1. Interest payments are made semiannually. Smith plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

Debit Cash $490,000; credit Long-Term Investments-HTM $490,000

On February 15, Sam Company boys 6,000 shares of Mark Corp. common stock at $28.73 per share plus a brokerage gee of $400. The stock is classified as available-for-sale securities. On March 15, Mark Corp. declares a dividend of $1.25 per share payable to stockholder of record on April 15. Same Company received the dividend on April 15 and ultimately sells half of the Mark Corp. stock on November 17 of the current year for $29.50 per share less a brokerage fee of $250. The journal entry to record the dividend on April 15 is:

Debit Cash $7,500; credit Dividend Revenue $7,500

Sheldon Corp. owns 2,000 shares of Bowie Corporation stock. Bowie Corporation has 25,000 shares of stock outstanding. Bowie paid $4 per share in the cash dividends to its stockholders. The entry to record the receipt of these dividends is:

Debit Cash, $8,000; credit Dividend Revenue, $8,000

On February 15, Pratt Company buys 7,700 shared of Parcelo Corp. common stock at $28.60 per share plus brokerage fee of $435. The stock is classified as long-term available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Parcelo declares a dividend of $1.22 per share payable to stockholders of record on April 15. Prat received the dividend on April 15 and ultimately sells half of the Parcelo stock on November 17 of the current year for $29.32 per share less a brokerage fee of $285. The journal entry to record the purchase on February 15 is:

Debit Long-Term Investments-AFS $220,655; credit Cash $220,655 explanation: (7,700X$28.60)+ $435=$220,655

Long-term investments are reported in the

Non-current section of the balance sheet called long-term investments

Calco Company purchased $94,000 of 10.0% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

debit Cash, $4,700; credit Interest Revenue, $4,700 explanation: ($94,000 X 10.0% = $9,400)X1/2= $4,700

Howard Corp. purchased at par value $75,000 of Chess Company's 8% bonds the mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Howard plans to hold the bonds until they mature. When the bonds mature, Howard should prepare the following journal entry:

debit Cash, $75,000; Credit Long-Term Investments-HTM, $75,000

Adam Corp. purchased at par value $160,000 of Barry Company's 7% bonds that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Adam plans to hold the bonds until they mature. The journal entry to record Adam's purchase of the bonds is

debit Short-Term Investments-HTM $160,000; credit Cash $160,000