Intermediate Accounting Assignment
You must show computations to receive credit for your answers.
1. On Jan 1, 2011 XYZ Co purchased 12,000 shares of ABC Co for $15 a share. ABC has 100,000 shares outstanding. ABC reported net income of $60,000 and paid dividends of $5,000. On Dec 31, 2011 ABC had a market value of $18 a share. XYZ accounts for this investment as available for sale.
Make the appropriate journal entries for 2011.
A) Purchase
B) Receipt of dividends
C) Year end adjustments
2. Use the same information as #1. On Dec 31, 2011 the value of ABC stock was $17.50 per share.
Make the appropriate adjusting entry as of December 31, 2011.
3. On Jan 1, 2011 XYZ purchased 11,000 shares of ABC Co for $20 a share. ABC had 50,000 shares outstanding. XYZ now accounts for its investment in ABC using the equity method. ABC reported net income of $120,000 and paid dividends of 30,000.
Make all of the necessary journal entries for 2011.
a) Initial purchase
b) Receipt of dividends
c) Reporting net income
4. XYZ invested in the bonds of ABC Co. The bonds had a maturity of $70,000 due in 10 years, paying annual interest of 6%, semiannually on June 30 and Dec 31. The market rate was 8%. XYZ paid $60,487.
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Interest Received
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Interest Revenue
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Amortization
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Carrying Value $60,487
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1
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2
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3
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4
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Fill in the above chart to account for the held to maturity investment and prepare journal entries for the amortization and receipt of interest:
June 30, Year 1
Dec 31, Year 2
5. The following information pertains to Crystal Inc.'s portfolio of investments for the year ended December 31, 2010:
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Cost
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Fair Value 12/31/09
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2010 Purchases
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2010 Sales
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Fair Value 12/31/10
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Held-to-maturity securities
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Security Joy
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$128,000
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$130,000
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Assume that Security Joy is a debt security that was purchased at a premium. The premium amortization for 2010 was $3,000. All declines in fair value are considered temporary.
What is the amount of Security Joy at December 31, 2010 that should be carried on the balance sheet?
6. The following information pertains to Crystal Inc.'s portfolio of investments for the year ended December 31, 2010:
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Cost
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Fair Value 12/31/09
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2010 Purchases
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2010 Sales
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Fair Value 12/31/10
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Trading securities
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Security Kris
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$700,000
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$725,000
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705,000
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Security Andrew
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100,000
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110,000
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$150,000
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a) What is the amount of Security Kris at December 31, 2010 that should be carried on the balance sheet?
b) What journal entry should be recorded on Dec 31, 2010 for Security Kris to record the adjustment?
c) What journal entry should be made upon the sale of Security Andrew?
7.
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Cost
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Fair Value 12/31/09
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2010 Purchases
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2010 Sales
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Fair Value 12/31/10
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Available-for-sale equity securities
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Security Stan
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400,000
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380,000
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500,000
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Security Lloyd
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100,000
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95,000
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102,000
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How much unrealized gain or loss should be reported on the balance sheet as of December 31, 2010?
8. ABC Company buys a bond as an available for sale security. The bond has a face value of $100,000 and matures in 10 years. The coupon is 6% and interest is paid semiannually on July 1 and December 31. The market rate of interest is 4%. The bond was purchased on January 1, Year 1 for $116,351.43. The carrying value of the bond after amortization on Dec 31, Year 1 was $114,992.03. The FMV of the bond was $113, 925.00 on Dec 31, Year 1.
Record the entry for receipt of interest on July 1, Year 1. Show computations.
Make the appropriate adjusting journal entry for Dec 31, Year 1.
The carrying value of the bond after amortization on Dec 31, Year 2 was $113,465. 49. The FMV of the bond on Dec 31, Year 2 was $$113, 578.
Make the appropriate adjusting journal entry for Dec 31, Year 2.
9. ABC Inc. entered into a four-year lease of equipment for $9,000 a year, payable at the beginning of each year. The lessor required ABC to guarantee that the equipment would be worth $6,000 at the end of the lease. If ABC's incremental borrowing rate is 14 percent and the lessor's implicit interest rate, which Rosemary is aware of, is 10 percent, ABC should record an asset on its books of what amount? Prepare the journal entry.
10. On January 1, 2010, James Company leased a machine for 10 years that could have been purchased for $100,000. The lessor used an implicit interest rate of 10 percent in determining the lease payments of $14,795, the first of which was made when the lease was signed. If James is aware of the lessor's implicit interest rate, what entry should James record as an asset on its books on January 1, 2010?
11 On December 31, 2009, XYZ Inc. leased a machine for seven years and made the first annual lease payment of $7,000. XYZ Inc. appropriately recorded this lease as a capital lease in 2009. The second payment was made on December 31, 2010. If the lessor's implicit interest rate on the lease is 10 percent, on its December 31, 2010, balance sheet, XYZ Inc. should report a lease obligation of what amount? Prepare the journal entry to record the payment on Dec 31, 2010.
12. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on January 1 of each year for six years, beginning January 1, 2011. The useful life of the asset is also estimated to be six years. Included in the lease payment are executor costs of $1000 to be paid annually by Jill Company. If Jack Company determined the interest payment to provide it a 10 percent, return, Jack Company would make the following entry on January 1, 2011:
13. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on Dec 31 of each year for six years, beginning Dec 31, 2011. The useful life of the asset is also estimated to be six years. Jack Company would make the following entry for the receipt of cash on Dec 31, 2011:
14. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on January 1 of each year for six years, beginning January 1, 2011. The useful life of the asset is also estimated to be six years. If Jack Company determined the interest payment to provide it a 10 percent return with no residual value, Jack Company would recognize interest income for 2011.
15. On January 1, 2005, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for industrial equipment. Annual lease payments of $10,000 are payable at the end of each year. Day knows that the lessor expects a 10 percent return on the lease. Day has a 12 percent incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party has guaranteed to pay Ward a residual value of $5,000 at the end of the lease.
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The present value of an ordinary annuity of $1 at
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12% for 10 years is 5.6502
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10% for 10 years is 6.1446
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The present value of $1 at
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12% for 10 years is 0.3220
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10% for 10 years is 0.3855
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On Day's October 31, 2005, balance sheet, the principal amount of the lease obligation was
16. A lease requires a payment at the end of each year for eight years. The initial asset value is $300,000, and the lessor expects the residual value to be $50,000 at the end of the lease. If the lessor requires a return of 9 percent, how much is the annual lease payment?