Exercises_chapter 1 : INVESTMENTS

Name: Nguyễn Thị Thanh Huyền

Class: 42K06.1
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E17-2:(Entries for Held-to-Maturity Securities) On January 1, 2013, Dagwood
Company purchased at par 12% bonds having a maturity value of $300,000. They
are dated January 1, 2013, and mature January 1, 2018, with interest receivable
December 31 of each year. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest received for 2013.
(c) Prepare the journal entry to record the interest received for 2014.
Answer :
a) DR: Debt Investments 300,000
CR: Cash 300,000
b) DR: Cash 36,000 (300,000*12%)
CR: Interest Revenue 36,000
c) DR: Cash 36,000
CR: Interest Revenue 36,000
E17-5:(Effective-Interest versus Straight-Line Bond Amortization) On January
1,2013, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9%
bonds at a price of $185,589. The interest is payable each December 31, and the
bonds mature December 31, 2015. The investment will provide Phantom Company a
12% yield. The bonds are classified as held-to-maturity.
Instructions
(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, 2014, and the
discount amortiza-tion under the straight-line method.
(d) Prepare the journal entry for the interest receipt of December 31, 2014, and the
discount amortiza-tion under the effective-interest method.
Answer:
a)
Date Cash received Interest Bond discount Carrying amount
revenue amortization of bonds
Jan 1, 2013 185,589
Dec 31, 2013 18,000 22,804 4,804 190,393
Dec 31, 2014 18,000 22,804 4,804 195,197
Dec 31, 2015 18,000 22,803 4,803 200,000
b)
Date Cash Interest Bond discount Carrying amount
received revenue amortization of bonds
Jan 1, 2013 185,589
Dec 31, 2013 18,000 22,270.68 4,270.68 189,859.68
Dec 31, 2014 18,000 22,783.16 4,783.16 194,642.84
Dec 31, 2015 18,000 23,357.16 5,357.16 200,000
c)
DR: Cash 18,000
DR: Debt Investment- Held to Maturity 4,804
CR: Intrest Revenue 22,804
d)
DR: Cash 18,000
DR: Debt Investment- Held to Maturity 4,783.16
CR: Intrest Revenue 22,783.16
E17-7: (Trading Securities Entries) On December 21, 2013, Bucky Katt Company
provided you with the following information regarding its trading securities.
During 2014, Colorado Company stock was sold for $9,400. The fair value of the
stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co.
stock—$20,500.
Instructions
(a) Prepare the adjusting journal entry needed on December 31, 2013.
(b) Prepare the journal entry to record the sale of the Colorado Company stock
during 2014.
(c) Prepare the adjusting journal entry needed on December 31, 2014.
Answer:
a) December 31, 2017
DR: Unrealized Holding Gain or Loss-Income 1,400
CR: Fair Value Adjustment 1,400
b) During 2018
DR: Cash 9,400
DR: Loss on Sale of Investments 600
CR: Equity Investments 10,000
c) December 31, 2018
Unrealized
Securities Cost Fair Value Gain (loss)
Clemson Corp. stock $20,000 $19,100 $(900)
Buffaloes Co. Stock 20,000 20,500 500
Total of portfolio $40,000 $39,600 (400)
Previous fair value (1,400)
adjustment balance – Cr
Fair value adjustment - Dr $1,000

DR: Fair Value Adjustment 1,000

CR: Unrealized Holding Gain or Loss-Income 1,000
E17-11: (Equity Securities Entries) Arantxa Corporation made the following cash
purchases of securities during 2014, which is the first year in which Arantxa
invested in securities.
1. On January 15, purchased 10,000 shares of Sanchez Company’s common stock at
$33.50 per share plus commission $1,980.
2. On April 1, purchased 5,000 shares of Vicario Co.’s common stock at $52.00 per
share plus commis-sion $3,370.
3. On September 10, purchased 7,000 shares of WTA Co.’s preferred stock at $26.50
per share plus commission $4,910.
On May 20, 2014, Arantxa sold 4,000 shares of Sanchez Company’s common stock
at a market price of $35 per share less brokerage commissions, taxes, and fees of
$3,850. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA
$28. In addition, the chief accountant of Arantxa told you that Arantxa Corporation
plans to hold these securities for the long term but may sell them in order to earn
profits from appreciation in prices.
Instructions
(a) Prepare the journal entries to record the above three security purchases.
(b) Prepare the journal entry for the security sale on May 20.
(c) Compute the unrealized gains or losses and prepare the adjusting entries for
Arantxa on December 31, 2014.
Answer:
a)
(1) DR: Equity Investments 335,000
CR: Cash 335,000
DR: Equity Investment 1,980
CR: Cash 1,980
(2) DR: Equity Investments 260,000
CR: Cash 260,000
DR: Equity Investment 3,370
CR: Cash 3,370
(3) DR: Equity Investments 185,500
CR: Cash 185,500
DR: Equity Investment 4,910
CR: Cash 4,910
b)
DR: Cash 136,150
CR: Equity Investment 134,792
CR: Gain On Sale of Investment 1,358
c)
Unrealized
Securities Cost Fair Value Gain (loss)
Sanchez Co. stock $202,188 $180,000 $(22,188)
Vicario Co. Stock 263,370 275,000 11,630
WTA Co. Stock 190,410 196,000 5,590
Total of portfolio value $655,968 $651,000 (4,968)
Previous fair value
adjustment balance 0
Fair value adjustment $(4,968)

DR: Unrealized Holding Gain or Loss-Income 4,968

CR: Fair Value Adjustment 4,968