(Entries for Held-to-Maturity Securities) On July 1, 2014, Salt Mine Corporation purchased at par 8% bonds having a maturity value of $250,000. The bonds are dated July 1, 2014, and mature July 1, 2019, with interest payable on July 1 of each year. The bonds are classified in the held-to-maturity category, and the company does not use reversing entries.
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest earned and interest received for 2014.
(c) Prepare the journal entries to record the interest earned and interest received for 2015.
E17-5B (Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2014, Falcon Electro acquires $400,000 of 8% bonds at a price of $442,376. The interest is payable each December 31, and the bonds mature December 31, 2034. The investment will provide Falcon Electro a 7% yield. The bonds are classified as held-to-maturity.
(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.
(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.
(c) Prepare the journal entry for the interest receipt of December 31, 2015, and the discount amortization under the straight-line method.
(d) Prepare the journal entry for the interest receipt of December 31, 2015, and the discount amortization under the effective-interest method.
E17-9B (Available-for-Sale Securities Entries and Financial Statement Presentation) At December 31, 2014, the available-for-sale equity portfolio for Zorro Foods Corp. is as follows.
Security Cost Fair Value
Apple $ 33,600 $ 31,000
Banana 175,000 174,000
Crisp 59,400 68,500
Total $268,000 $273,500
December 31, 2013, securities fair value adjustment balance-Dr. 5,400
On January 20, 2015, Zorro sold Apple for $31,100. The sale proceeds are net of brokerage fees.
(a) Prepare the adjusting entry at December 31, 2014, to report the portfolio at fair value.
(b) Show the balance sheet presentation of the investment related accounts at December 31, 2014. (Ignore notes presentation.)
(c) Prepare the journal entry for the 2015 sale of Apple.
E17-12B (Journal Entries for Fair Value and Equity Methods) Presented below are two independent situations.
Situation 1-- People Tables acquired 15% of the 5,000,000 shares of common stock of Robot Sofas at a total cost of $8.50 per share on April 1, 2014. On August 8, Robot Sofas declared and paid a $250,000 cash dividend. On December 31, Robot Sofas market price was $9.00 per share and the company reported net income of $685,000 for the year. The securities are classified as available-for-sale.
Situation 2 -- On January 1, 2014, Mica Company purchased 40% of Santos Corporation 500,000 outstanding shares of common stock at a total cost of $13 per share. On October 25, Santos declared and paid a cash dividend of $0.40 per share. On December 31, Santos reported a net income of $860,000 for the year and the market price of its common stock was $14 per share.
Prepare all necessary journal entries in 2012 for both situations.
P17-5B (Equity Securities Entries and Disclosures) B&W Company has the following securities In its investment portfolio on December 31, 2014 (all securities were purchased in 2014): (1) 5,000 shares of Atlantic Co. common stock which cost $81,590, (2) 3,000 shares of Boston Lager Ltd. common stock which cost $152,780, and (3) 12,000 shares of Canada Company preferred stock which cost $560,000. The Fair Value Adjustment account shows a debit of $8,300 at the end of 2014.
In 2015, B&W completed the following securities transactions.
1. On March 17, sold 5,000 shares of Atlantic's common stock at $18 per share less fees of $3,500.
2. On June 6, purchased 9,000 shares of Dunlap common stock at $21.70 per share plus fees of $2,800.
On December 31, 2015, the market values per share of these securities were: Boston Lager $62.50, Canada $46, and Dunlap $23. In addition, the accounting supervisor of B&W told you that, even though all these securities have readily determinable fair values, B&W will not actively trade these securities because the top management intends to hold them for more than one year.
(a) Prepare the entry for the security sale on March 17, 2015.
(b) Prepare the journal entry to record the security purchase on June 6, 2015.
(c) Compute the unrealized gains or losses and prepare the adjusting entry for B&W on December 31, 2015.
(d) How should the unrealized gains or losses be reported on B&W's balance sheet?
P17-11B (Equity Investments-Available-for-Sale) Gold Knight Holdings, Inc. had the following
Available-for-sale investment portfolio at January 1, 2014. ARTIC INC.BALANCE SHEET AS OF JANUARY 1, 2014
Perr Company 2,500 shares @ $26 each $ 65,000
Ranier Company 6,000 shares @ $12 each $72,000
Quail Company 1,200 shares @ $15 each $18,000
Equity investments (available-for-sale) @ cost $155,000
Fair value adjustment (available-for-sale) $11,500
Equity investments (available-for-sale) @ fair value $166,500
During 2014, the following transactions took place.
1. On June 15, Quail Company paid a $1 per share dividend.
2. On July 3, Gold Knight Holdings, Inc. sold 4,000 shares of Ranier Company for $13 per share.
3. On September 20, Gold Knight Holdings, Inc. purchased 500 more shares of Perr Co. stock at $28 per share.
4. At December 31, 2014, the stocks had the following price per share values: Perr $29, Ranier $11, and Quail $14
During 2015, the following transactions took place.
5. On March 1, Gold Knight Holdings, Inc. sold the remaining Ranier shares for $11 per share.
6. On April 18, Quail Company paid a $1.25 per share dividend.
7. On December 13, Perr Company declared a cash dividend of $1.50 per share to be paid in the next month.
8. At December 31, 2015, the stocks had the following price per shares values: Perr $30 and Quail $17.
(a) Prepare journal entries for each of the above transactions.
(b) Prepare a partial balance sheet showing the investment-related amounts to be reported at December 31, 2014 and 2015