Except those relevant to the investments held by the company. JAMES' POLICY IS TO ACCRUE INCOME GENERATED FROM CASH DIVIDENDS ON THE DECLARATION
DATE.
A. No entries had been made to the Investment account during 2012. The detail to support the balance on your trial balance follows:
100 shares of $4 ABD Corp. Preferred Stock
300 shares of Banana Tabulators, Inc. Common
Five $1000 bonds of HAL Corporation (8% coupon rate, interest
payable 6/1 and 12/1, maturity 12/1/2020)
100 shares Consolidated Bell Common
1,000 shares of Red & Black Transportation Corp. Common Stock
Total
The ABD preferred stock was purchased for cash income. This stock is readily marketable, but there is no intention of selling this stock any time in the near future.
ABD declared the full stated dividend on December 15, 2012 and it is due to be paid January 16, 2013. James Corp. owns 40% of ABD's preferred stock, and ABD's
net income for the year was $24,000
The Banana Tabulator stock was originally purchased 3 years ago with the expectation that it would grow sharply in value; the recent fall in the fair value of the stock is
due, according to James' stock advisor, on a temporary depression in the tabulator market so its value is expected to eventually recover. It is now the intention of the
owner to hold on to this security for probably two or three more years. No cash dividends were declared or paid this year by Banana Tabulator.
The HAL bonds and the Consolidated Bell common stock were both purchased in 2010 with excess cash and to generate income. If additional cash is needed, it is
likely that either security could be sold in the next year.
Interest was paid from the HAL bonds on schedule.
Consolidated Bell declared a stock dividend and distributed 20 shares of common stock to James on September 15, 2012, when the fair market value of the common
stock was at 72. On October 2, the corporation sold the 20 shares of stock from the stock dividend at 71.50 and total commissions from the sale were $30.
Consolidated Bell declared a cash dividend of $6.00 per share on December 5, 2012, which is payable January 7, 2013.
Red & Black Transportation, Inc. provides the majority of the transportation for James' inventory and the owner sits on R&B's Board of Directors. R&B has currently
issued and outstanding 3,000 shares of voting common stock and James paid book value for the stock. This year R&B reported $42,000 in net income. On November
10 it declared a total of $12,000 in cash dividends to all its shareholders. Date of record was November 30 and date of payment was December 9, 2012. There is no
intention on the part of management to sell any of this stock in the foreseeable future.
B. These new securities were purchased in 2012:
1 On September 1, 2012, James purchased 1,600 shares of Fermi Wholesale Television Incorporated, which is one of James' major suppliers. At the time of the purchase, Fermi had issued and outstanding 6,400 shares of voting common stock. The business paid $25.25 per share. Total commissions on the purchase were $200. Fermi's total net loss for 2012 was $27,000, which was incurred evenly throughout the year. Fermi declared no dividends during 2012 and the fair value of the stock was 24 by the end of the year. There is no intention to sell any Fermi common stock any time soon.
2 On June 1, 2012, the company purchased five $1,000 bonds issued by the City School District. These bonds were purchased at 105 plus purchased interest. $100 in commissions and taxes were paid on the trade. The contract rate on these bonds is 6% with interest payable on 4/1 and 10/1; these bonds mature 4/1/2017. It is the intention of management to hold these bonds until they mature. On December 31, 2012, these bonds had a fair value of 104. James uses Straight-Line (SL) method to amortize premiums and discounts on its debt investments when appropriate.
3 On October 15, 2012, 100 shares of Granny Smith common stock were purchased at 35; commissions and taxes paid on the transaction were $125. This stock trades OTC and is regularly reported on NASDAQ. Management plans to sell its holding in Granny Smith to take advantage of short-term price increases that management believes will occur in the first couple months of 2013. On November 30, when the stock was trading at 50, it split 2:1. James sold 50 shares of the shares it received from the split at 24.25 on December 28, 2012. The fees to transact the sale were $75. A cash dividend of $1 a share was declared December 20, 2012, with a date of record of January 12, 2013, and a date of distribution of January 23, 2013. On December 31, 2012, the fair value of Granny Smith was 26
C. The prepaid expenses include a $3,000 annual premium paid for a whole-life insurance policy on the life of the owner of the corporation with the corporation as beneficiary. The policy was dated March 1, 2012, and, according to the information from the insurance company, as of December 31, 2012, the investment portion of the $3,000 premium was $1,000. This is the first year the insurance policy has been in effect.
REQUIRED:
a. Classify the investments already on the books of the corporation and journalize the reclassification entries. Since none of the investments on the books were previously classified, consider ONLY the CURRENT intentions of management when you determine each classification rather than journalizing a change in portfolio.
b. None of the 2012 transactions described above are recorded on the books of the business. Prepare all entries necessary given the information above and the trial balance that follows. INCLUDE ALL NECESSARY ADJUSTMENTS. Closing entries are NOT required.
c. Prepare a multiple-step income statement, statement of retained earnings and a classified balance sheet as of December 31, 2012.by James during the year and a total of $25,000 of retained earnings were restricted (appropriated) during 2012 to meet the requirements of the bond contract.
When alternate methods are available, use the preferred GAAP. All transactions should be considered material.
Show all calculations used to arrive at your entries and please present calculations for each entry either directly above or below the entry.
ROUND ALL CALCULATIONS BEFORE
YOU JOURNALIZE.
Organize your entries into parts A, B, and C as the information is given to you in the narrative. Please do NOT organize the transaction into chronological order for the purposes of your journalizing. Any necessary adjustments should be included with the daily transactions and labeled as such.
Since your trial balance includes only those accounts with balances open at the end of the year, you will need to open new accounts. Whenever appropriate, please be much more specific with your account titles than what is in your trial balance.
Prepare a Comprehensive Income Statement as well in addition to the required.