ACCT301A Ch 17

On January 1, 2020, Marigold Inc. purchased 7% bonds having a maturity value of $524,000 for $542,155.39. The bonds provide the bondholders with an 6% yield. The bonds are dated January 1,2020, and mature January 1, 2024, with interest receivable on January 1 of each year. Marigold Inc. uses the effective interest method to allocate unamortized discount or premium. The bonds are classified as available for sale. The fair value of the bonds at Dec 31 of each year-end it as follows 2020 $534,500 2021 $535,600 2022 $530,400 2023 $524,000 (a) prepare the journal entry at the date of the bond purchase (b) prepare the journal entries to record the interest revenue and recognition of fair value for 2020 (c) Prepare the journal entry to record the recognition of fair value for 2021

(a) Debt investments 542,155.39 Cash 542,155.39 (b)Interest Receivable 36,680 Debt Investments 4,150.68 Interest Revenue 32,529.32 Unrealized holding - equity 3,504.71 Fair value adjustment 3,504.71 (c)Fair Value Adjustment 5499.72 Unrealized holding gain/loss-equity 5499.72

At December 31,2020, the available-for-sale debt portfolio for Blossom Corp is as follows: Securities Cost Fair Value Unrealized Gain (Loss) Good Co. Bonds $27,000 $24,900 $(2,100) Home Co. Bonds 27,800 29,500 1,700 Grand Inc. Debentures 36,200 37,200 1,000 91,000 91,600 600 Before adjusting entry on Dec 31, 2020, the fair value adjustment account contained a credit balance of $450. Blossom Corp reported net income of $82,200 for 2020 (a) Prepare adjusting entry at Dec 31, 2020 to report the portfolio at fair value

(a) Fair value adjustment 1050 Unrealized holding gain- equity 1050

On January 1, 2020, Vaughn Company purchased at par 8% bonds having a maturity value of $220,000. They are dated January 1, 2020, and mature January 1, 2026, with interest received on January 1 of each year. The bonds are classified in the held-to-maturity category (a)Prepare the journal entry at the date of the bond purchase (b)Prepare the journal entry to record the interest revenue on December 31, 2020 (c) Prepare the journal entry to record the interest received on Jan 1, 2021

(a)Debt investments 220,000 Cash 220,000 (b)Interest Receivable 17,600 Interest Revenue 17,600 (c) Cash 17,600 Interest Receivable 17,600

Swifty Company purchased on January 1, 2020, as a held-to-maturity investment, $104,000 of the 6%, 6-year bonds of Harrison, Inc. for $94,240, which provides a 8% return. The bonds pay interest semiannually. Prepare Swifty's journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and discount amortization. Assume effective-interest amortization is used.

Debt investments 94,240 Cash 94,240 Cash 3,120 Debt investments 649,6 Interest Revenue 3769.6

On January 1, 2020, Marigold Corporation purchased 40% of the common shares of River Company for $399,000. During the year, River earned net income of $119,000 and paid dividends of $40,000 Prepare the entries for Marigold to record the purchase and any additional entries related to this investment in River Company in 2020

Equity Investments 399,000 Cash 399,000 Cash 16,000 Equity Investments 16,000 Equity Investments 47,600 Investment Income 47,600

Windsor Locomotive Corporation purchased for $585,000 a 40% interest in Lopez Railways, Inc. This investment enables Windsor Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $165,000 and paid dividends of $22,000. Prepare Windsor Locomotive's journal entries related to this investment.

Equity investments 585000 Cash 585000 Equity Investments 66000 Investment income 66000 Cash 8800 Equity Investments 8800

Swifty, Inc. purchased 1,900 shares of Oneida Corporation common stock for $92,700. During the year, Oneida paid a cash dividend of $1.20 per share. At year-end, Oneida stock was selling for $47.20 per share. Prepare Swifty'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.)

Equity investments 92,700 Cash 92,700 Cash 2,280 Dividend Revenue 2,280 Unrealized holding gain/loss-income 3,020 Fair value adjustment 3,020

Investments are reported at market value on the balance sheet under the equity method(T or F)

FALSE

Unrealized gains and losses on held-to-maturity securities are reported on income statement (T or F)

False

Holdings between 20-50% of another company's voting stock are accounted for using the equity method T OR F

TRUE

Recovery of impairment is prohibited by US GAAP for held-to-maturity securities. (T or F)

TRUE

During 2017, Grambling Company purchased 10,000 shares of Southern Corp. common stock for $215,000 as a passive interest investment. The fair value of theses shares was $289,000 at Dec 31 2017. During 2018, Grambling sold all of the Southern stock for $266,000. Grambling Company should report a realized gain on the sale of stock in 2018 of a. $11,000 b. 37,000 c. 26,000 d. 25,000

a. $11,000 226,000 - 215,000 = 11,000 selling price - cost

Foucault Company owns 40,000 of the 100,000 outstanding shares of Mango Inc. common stock. During 2018, Mango earns $640,000 and pays cash dividends of $480,000. If the beginning balance in Foucault's investment account was $430,000, the balance at December 31, 2018 should be a. $494,000 b. 366,000 c. 430,000 d. 686,000

a. $494,000 430,000+256,000-192,000= 494,000 beg balance + income - dividend

During 2017, Jackson Company purchased 17,000 shares of Monticello corp. common stock for $382,500 as a passive interest investment. The fair value of these shares was $373,150 at Dec 31 2017. Jackson sold all of the Monticello stock for $27.25 per share on July 3, 2018, incurring $15,000 in brokerage commissions. Jackson Company should report a realized gain on the sale of stock in 2018 of a. $65,750 b. 80,750 c. 90,100 d. 75,100

a. $65,750 17,000 shares x $27.25= $463,250 463,250 - 15,000 = 448,250 448,250 - 382,500 = 65,750

Savannah Corporation purchased 35,000 shares of common stock of the Boulet Corporation for $50 per share on January 2, 2017. During 2017, Boulet Corporation had 140,000 shares of common stock outstanding, paid cash dividends of $120,000, and reported net income of $320,000. Savannah Corporation should report revenue from investment for 2017 in the amount of a. $80,000 b. 0 c. 50,000 d. 30,000

a. $80,000 35,000/140,000 shares = 25% 25% x 320,000 = $80,000

Unrealized holding gains or losses are recognized as other comprehensive income for: a. available for sale securities b. trading securities c. long term securities d. held to maturity securities

a. available for sale

An ownership interest of 30% of the common stock of another corporation should be accounted for using the: a. equity method b. cost method c. consolidated method d. fair value method

a. equity method

An ownership interest of 15% in another company's voting stock should be accounting for using the : a. fair value method b. equity method c. consolidation method d. cost methdod

a. fair value method

Unrealized holding gains or losses which are recognized in income are from debt securities classified as a. trading b. available for sale c. held to maturity d. none

a. trading

Trading securities are generally held for less than a. 3 weeks b. 3 months c. 12 months d. 6 months

b. 3 months

Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of: a. dividends paid by the investee b. declines in the fair value of investment c. losses of the investee d. all

b. declines in the fair value of the investment

If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the investment in the subsidiary under the a. cost method b. equity method c. divesture method d. fair value method

b. equity method

The unrealized gains and losses on available for sale securities are: a. reported on individual securities b. reported on the portfolio of investments c. not reported at all d. none

b. reported on portfolio of investments

On its Dec 31 2017, balance sheets, Estes Co. reported its investment in trading securities, which had cost $500,000, at fair value of $475,000. At Dec 31 2018, the fair value of the securities was $492,500. What should Estes report on its 2018 income statement as a result of the increase in fair value of the investments in 2018? a. $0 b. unrealized gain of $17,500 c. realized gain of $17,500 d. unrealized loss of $7,500

b. unrealized gain of $17,500 500,000 - 492,500 = 7,500 25000-7,500 = 17,500

The unrealized holding gain or loss on trading securities is reported as a. other comprehensive income b. separate component of stockholder's equity c. part of income d. addition to (deduction from) trading securities account balance

c. part of income

Select the correct statement regarding the impact on stockholders' equity of a transfer from available-for-sale to trading a. the company may omit recognition of fair value b. the separate component of stockholders' equity is increased or decreased by the unrealized gain or loss at the date of transfer c. the unrealized gain or loss at the date of transfer increases or decreases stockholders' equity d. the unrealized gain or loss at the date of transfer is carried as a separate component of stockholders' equity is amortized over the remaining life of the security

c. the unrealized gain or loss at the date of transfer increases or decreases stockholders' equity

Rosenblum Company's trading securities portfolio which is appropriately included in current assets is as follows: Cost Fair Value Unrealized gain (loss) Boston Corp. $450,000 $421,000 $(29,000) Greening Inc. 233,000 255,000 22,000 $683,000 $676,000 $(7,000) Ignoring income taxes, what amount should be reported as a charge against income in Rosenblum's 2017 income statement if 2017 is Rosenblum's first year of operation? a. $29,000 b. 0 c. 22,000 d. 7,000

d. 7,000

A requirement for a security to be classified as held to maturity is a. ability to hold the security to maturity b. positive intent c. the security must be a debt security d. all are correct

d. all

Debt securities may be classified as a. held to maturity b. trading c. available for sale d. all are correct

d. all

Investments in debt securities should be recorded on the date of acquisition at a. maturity value plus brokerage fees and other costs incidental to the purchase b. lower of cost or market c. market value d. cost plus brokerage fees and other costs incidental to the purchase

d. cost plus brokerage fees and other incidental to the purchase

Debt securities that are bought and held primarily for sale in the near term are reported at : a. cost b. amortized cost c. net realizable value d. fair value

d. fair value

A correct valuation is a. none b. available for sale securities at amortized cost c. trading securities at amortized cost d. held to maturity securities at amortized cost

d. held to maturity securities at amortized cost

An unrealized holding gain on a company's available for sale securities should be reflected in the current financial statements as a. current gain resulting from holding securities b. direct increase to retained earnings c. note or parenthetical disclosure only d. other comprehensive income and included in the equity section of the balance sheet

d. other comprehensive income and included in the equity section of balance sheet

Under the equity method, if an investee company generates net income, the investor company: a. records its proportionate share of net income as dividend income b. records its proportionate share as an unrealized gain c. does not recognize any share of the net income d. records its proportionate share as an increase in its investment account

d. records its proportionate share as an increase in its investment account