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Chapter 10: Q12E_2. (page 570)

Accounting for equity investments

Strategic Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon鈥檚 voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock.

Dec. 31 Adjusted the investment to its current market value of \(45 per share.

31 Phyflexon reported net income of \)330,000 for the year ended 2018.

Requirements

2. Classify and prepare a partial balance sheet for Strategic鈥檚 Phyflexon investment as of December 31, 2018.

Short Answer

Expert verified

Particular

Amount $

Asset

Equity investment

$36,000

Step by step solution

01

Definition of Balance Sheet

The balance sheet is a financial statement that contains details of a company鈥檚 assets or liabilities at a specific point in time. It shows how the business is being funded. In the balance sheet, theassets and liabilities should be equal.

02

Partial Balance Sheet

The equity investment will be reported on the asset side of the balance sheet. Itsclassification as current and non-current asset depends upon the company鈥檚 management.

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Most popular questions from this chapter

Question: E10-11 Accounting for debt investments

Peyton Investments completed the following investment transactions during 2018:

2018

Jan. 5 Purchased Vedder Company鈥檚 \(400,000 bond at face value. Peyton classified the investment as available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and December 31 and matures on December 31, 2021. Management鈥檚 intent is to keep the bonds for several years.

Jun. 30 Received an interest payment from Vedder.

Dec. 31 Received an interest payment from Vedder.

31 Adjusted the investment to its current market value of \)396,000

Requirements

2. Prepare a partial balance sheet for Peyton鈥檚 Vedder investment as of December 31, 2018.

Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows: 2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for \(13.40 per share.

Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec. 31 Received a \(100 interest payment from Violet.

31 Adjusted the Violet bond to its market value of \)22,000.

Requirements

1. Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of the ownership of outstanding voting stock.)

On August 20, 2018, Mraz, Co. decides to invest excess cash of \(2,500 by purchasing Virginia, Inc. bonds. At year-end, December 31, 2018, the market price of the bonds was \)2,000. The investment is categorized as available-for-sale debt. Journalize the adjusting entry needed at December 31, 2018.

Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh鈥檚 Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit鈥檚 bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.

Requirements

Journalize the transactions for Josh鈥檚 investment in Jackrabbit, Inc. for 2018.

Accounting for debt investments

Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity.

Requirements

Journalize the entry required on the Morin bonds maturity date. (Assume the last interest payment has already been recorded.)
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