Chapter 17 Team Problem – Spring 2011 (10 points)

Instructions to teams: make this page the cover sheet to your solution. Staple it to
your solution in the upper left-hand corner. Each team member present and
participating must print and sign his / her name in the space provided below.

On January 1, 2007, ABC Company purchased the following investments:

• $500,000 of Part Inc.’s 9% bonds that were purchased to yield 10%. The
bonds were dated January 1, 2007, mature on January 1, 2012, and pay
interest on June 30 and December 31. The bonds were classified by Whole
Company as Held-To-Maturity Securities. (Round PV to nearest dollar)
• 4,000 shares (no significant influence) of Jump Inc. common stock for $25
per share, which were classified as Trading Securities.
• 9,000 shares (no significant influence) of Fish Company common stock for
$18 per share, which were classified as Trading Securities.
• 100,000 shares of Swim Inc. common stock for $1,750,000. This represents
a 35% interest in Swim Inc. and gives Whole Company significant influence
over Swim Inc.

During 2007, the following information pertains to ABC Company’s investments:

• On November 15, Fish Company paid a cash dividend of $1.37 per share.
• On December 15, Jump Inc. paid a cash dividend of $0.32 per share.
• On December 31, Swim Inc. reported net income of $722,500 for the year.
• On December 31, the investments had the following market values:
o Part Inc. $518, 375
o Jump Inc. $27 per share
o Fish Company $15 per share
o Swim Inc. $23 per share

During 2008, the following information pertains to ABC Company’s investments:

• On July 1, half of the Jump Inc. shares were sold for $34.50 per share.
• On October 15, Swim Inc. paid a cash dividend of $0.46 per share.
• On December 31, Swim Inc. reported net loss of $140,000 for the year.
• On December 31, the investments had the following market values:
o Part Inc. $514, 200
o Jump Inc. $21 per share
o Fish Company $11 per share
o Swim Inc. $24 per share

Required:
Prepare all 2007 and 2008 journal entries related to these securities.

Printed name and signature of each present and participating student:

Solution
2007 Journal Entries
1/1/07 HTM Securities 480,696
Cash 480,696

1/1/07 T/S – Jump(4,000*$25) 100,000

Cash 100,000

1/1/07 T/S – Fish(9,000 * $18) 162,000

Cash 162,000

1/1/07 Investment in Swim Inc. 1,750,000

Cash 1,750,000

6/30/07 Cash 22,500

HTM Securities 1,535
Interest Revenue 24,035

11/15/07 Cash(9,000*1.37) 12,330

Dividend Revenue 12,330

12/15/07 Cash (4,000*0.32) 1,280

Dividend Revenue 1,280

12/31/07 Cash 22,500

HTM Securities 1,612
Interest Revenue 24,112

12/31/07 Investment in Swim Inc. 252,875

Revenue from Investment 252,875
($722,500*35%)

Market Adjustment Entries:

Cost Market Difference

12/31/06
Jump Inc. 100,000 108,000 8,000
Fish Company 162,000 135,000 (27,000)

12/31/07 Unreal. Hold. G/L – Income 19,000

Securities FV Adjustment – TS 19,000
2008 Journal Entries
6/30/08 Cash 22,500
HTM Securities 1,692
Interest Revenue 24,192

Sale of Jump Inc. Stock:

Cost: 50,000 (2,000*25)
Selling Price: 69,000 (2,000*34.50)
Gain on Sale 19,000

7/1/08 Cash 69,000

T/S – Jump 50,000
Gain on Sale 19,000

10/15/08 Cash (100,000*.46) 46,000

Investment in Swim Inc. 46,000

12/31/08 Cash 22,500

HTM Securities 1,777
Interest Revenue 24,277

12/31/08 Loss from Investment 49,000

Investment in Swim Inc. 49,000
($140,000*35%)

Market Adjustment Entries:

Cost Market Difference
12/31/07
Jump Inc. 50,000 42,000 (8,000)
Fish Company 162,000 99,000 (63,000)

12/31/08 Unreal. Hold. G/L – Income 52,000

Securities FV Adjustment – TS 52,000

Cash Interest Dsct. Amort. Amortized

Part Inc Date Received Revenue Amort. Total Cost
FV 500,000 1/1/2007 0 480,696
PMT 22,500 6/30/2007 22,500 24,035 1,535 1,535 482,231
N 10 12/31/2007 22,500 24,112 1,612 3,146 483,842
I 5 6/30/2008 22,500 24,192 1,692 4,838 485,534
CPT PV 480,696 12/31/2008 22,500 24,277 1,777 6,615 487,311