BE17-1
Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’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. (Round answers to zero decimal places, e.g. 25,000. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
BE17-2
Garfield Company purchased, as an available-for-sale securities, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’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. The bonds have a year-end fair value of $75,500. Assume effective interest amortization is used. (Round answers to zero decimal places, e.g. 12,510. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
BE17-3
Carow Corporation purchased, as a held-to-maturity investment, $60,000 of the 8%, 5-year bonds of Harrison, Inc. for $65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carows’ 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. (Round answers to zero decimal places, e.g. 25,510. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
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BE17-4 Hendricks Corporation purchased trading investment bonds for $50,000 at par. At December 31, Hendricks received annual interest of $2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment.
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BE17-5
Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock as an available-for-sale investment for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks’s journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.
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BE17-6 Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock as an investment in Equity Investments (Trading) for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks’s journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. | ||||||||||||||||||||||||||||||||||||
BE17-7 Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment. | ||||||||||||||||||||||||||||||||||||
BE17-8
Cleveland Company has a stock portfolio valued at $4,000. Its cost was $3,300. If the Securities Fair Value Adjustment (Available-for-Sale) account has a debit balance of $200, prepare the journal entry at year-end.
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BE17-9
The following information relates to Starbucks for 2009: net income $390.8 million; unrealized holding gain of $9.8 million related to available-for-sale securities during the year; accumulated other comprehensive income of $48.4 on September 28, 2008. (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).) Assuming no other changes in accumulated other comprehensive income, determine:
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BE17-10 Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler with a carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other-than temporary. Prepare the journal entry, if any, to record the reduction in value. |
E17-3
(Entries for Held-to-Maturity Securities)
On January 1, 2011, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2011, and mature January 1, 2016, with interest receivable December 31 of each year. Roosevelt Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category. (Round your answers to 2 decimal places, e.g. 25,100.25.)
(a) | Prepare the journal entry at the date of the bond purchase. |
(b) | Prepare a bond amortization schedule. (Round your calculation for each cell to 2 decimal places, e.g. 25,210.25. Use the rounded amount in your calculation for the next cell.) |
Schedule of Interest Revenue and Bond Premium Amortization | ||||
Effective Interest Method | ||||
12% Bonds Sold to Yield 10% | ||||
1/1/11 |
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| $ 537907.4 |
12/31/11 | ||||
12/31/12 | ||||
12/31/13 | ||||
12/31/14 | ||||
12/31/15 | ||||
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*$.75 added to adjust for prior rounding | ||||
(c) | Prepare the journal entry to record the interest received and the amortization for 2011. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round all answers to 2 decimal places, e.g. 25,205.25.) |
(d) | Prepare the journal entry to record the interest received and the amortization for 2012. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round all answers to 2 decimal places, e.g. 25,205.25.) |
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| E17-4 (Entries for Available-for-Sale Securities) On January 1, 2011, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2011, and mature on January 1, 2016, with interest receivable December 31 of each year. Roosevelt Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows:
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E17-9 (Available-for-Sale Securities Entries and Financial Statement Presentation) At December 31, 2012, the available-for-sale equity portfolio for Wenger, Inc. is as follows.
On January 20, 2013, Wenger, Inc. sold security A for $15,300. The sale proceeds are net of brokerage fees.
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P17-3
(Available-for-Sale Investments) Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.
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Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) | |||||||||||||||||||||
Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2012, using the straight-line method. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round computations to 3 decimal places, e.g. 12.252 and the final answers to zero decimal places, e.g. 12,510.) | ||||||
The fair values of the investments on December 31, 2012, were:
What entry or entries, if any, would you recommend be made? | |||||||||||||||
The U.S. government bonds were sold on July 1,2013, for $119,200 plus accrued interest. Give the proper entry. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) | ||||||||||||||||||||
-P17-8 (a & c)
(Fair Value and Equity Methods) Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of investing idle cash in equity securities. In particular, Brooks has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Brooks does not have significant influence over the operations of Norton Industries.
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Prepare the appropriate adjusting entries for Brooks as of December 31, 2012, to reflect the application of the “fair value” rule for both classes of securities described above. | |||||||||||||||||||||||||||
Prepare the entries for the Norton investment, assuming that Brooks owns 25% of Norton’s shares. Norton reported income of $500,000 in 2012 and paid cash dividends of $100,000. | ||||||||||||||||||||
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