ACCT 212 DSM 10

Assume Jones Electronics has excess cash to invest and pays $200,000 to buy $200,000 face value 5%, five year, Beck Company bonds on January 1 of the current year. The bonds pay interest on June 30 and December 31 each year. Jones plans to hold the bonds to maturity. To record the journal entry for the receipt of the first interest revenue received on the bond investment:

Cash(dr)-$5,000 Interest Revenue(cr)-$5,000 Interest is paid to us every 6 months, so the amount of interest would be $200,000 * (5% / 2) = $5,000. The journal entry would be a debit to Cash and a credit to Interest Revenue.

________ are equity securities in which the investor owns 20% or more, but less than 50%, of the investee's voting stock.

Held-to-maturity investments: Securities the investor intends to hold until they mature Significant interest investments: Securities in which the investor owns 20% or more, but less than 50%, of the investee's voting stock. Available-for-sale investments: Securities in which the investor holds less that 20% of the investee's voting stock and that the investor does not plan to hold until they mature Controlling interest investments: Securities in which the investor owns more than 50% of the investee's voting stock.

Suppose that on December 31 of the current year, Jones Company reported trading investments of $20,000. After careful evaluation, Jones concluded that the market value of the trading investments had decreased to $19,500. The adjusting journal entry to record the unrealized loss would be:

Unrealized Holding loss- Trading(dr)-500 Fair Value Adjustment- Trading(cr)-500 The decrease in value of $500 ($20,000 - $19,500) is recorded as the adjustment. This is recorded as a debit to Unrealized Holding Loss - Trading and a credit to Fair Value Adjustment - Trading.

Smith Company invests $200,000 in 6% bonds at face value that the company intends to hold until the bond maturity date. The interest revenue recognized when each semiannual interest payment is received would be recorded as a __________.

credit to Interest Revenue of $6,000 Explain: Interest Revenue is recorded as the semiannual interest payments are received. The entry for receiving interest revenue would be a debit to Cash for $6,000 and a credit to Interest Revenue for $6,000.

Joe Smith Company owns 34% of ABC Company's outstanding voting stock. This is classified as a(n) ________.

significant interest equity investment Explain: When an investor owns 20%-50% of the voting stock of another company, it is considered to be a significant interest equity investment.