On March 1, 2011, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $103,000 plus accrued interest. The appropriate interest rate is 6%. Interest on these bonds is payable on January 1 and July 1 of each year. Navy's investment is accounted for as held to maturity. The fair value of the Treasury bonds is $104,000 at year end.
Required:Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. Show calculations, rounded to the nearest dollar.
2. FKG Inc. carries the following investments on its books at December 31, 2010, and December 31, 2011. All securities were purchased during 2010.
Required:
(1.) Prepare the necessary journal entries for FKG on December 31, 2010, and December 31, 2011.
(2.) What net effect would the valuation of these stock investments have on 2009 net income? On 2011 net income?
3. Fredo, Inc purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2011. Sonny recognized a total of $400,000 of income during 2009, paid $30,000 of dividends to Fredo during 2009, and at December 31, 2011 the market value of the Sonny investment increased to $1,040,000.
Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo accounts for that investment as (1) an available-for-sale investment, and (2) elects the fair-value option.
4. On September 1, 2011, Triton Entertainment borrowed $24 million cash to fund a new Fun Park. The loan was made by Nevada Bank under a noncommitted short-term line of credit arrangement. Triton issued a 9-month, 12% promissory note. Interest was payable at maturity. Triton's fiscal period is the calendar year.
Required:
1. Prepare the journal entry for the issuance of the note by Triton.
2. Prepare the appropriate adjusting entry for the note by Triton on December 31, 2011.
3. Prepare the journal entry for the payment of the note at maturity.
5. Grossman Products began operations in 2011. The following selected transactions occurred from September 2011 through March 2012. Grossman's fiscal year ends on December 31.
2011:
(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees.
(b.) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity.
(c.) Grossman received $3,000 of refundable deposits in December for reusable containers.
(d.) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax.
(e.) Grossman recorded accrued interest.
2012:
(f.) Grossman paid the promissory note on the March 1 due date.
(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.
Required:
1. Prepare the appropriate journal entries for the 2011 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied.
3. Prepare the appropriate journal entries for the 2012 transactions.