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Chapter 10: Q13RQ. (page 567)
How are held-to-maturity debt investments reported on the financial statements?
Held to maturity debt investments arereported on the asset side on the basis of their maturity period.
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Question: What method is used for investments in equity securities with more than 50% ownership? Briefly describe this method.
Question: S10-4 Accounting for equity investments
On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for \(16 per share. On August 1, 2018, Farrier paid a \)0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.
Requirements
Identify what type of investment the Farrier stock is for Bryant.
Accounting for equity investments
Money Man Investments completed the following transactions during 2018:
Jan. 14 Purchased 400 shares of Technomite stock, paying \(56 per share. The investment represents 25% ownership in Technomite鈥檚 voting stock and Money Man has significant influence over Technomite. Money Man intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of \)0.27 per share on the Technomite stock.
Dec. 31 Technomite鈥檚 current market value is \(51 per share.
31 Technomite reported net income of \)180,000 for the year ended 2018.
Requirements
1. Journalize Money Man鈥檚 transactions. Explanations are not required.
Question: P10-21B Accounting for debt investments
Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way 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. Hale and Sons intends to hold the Tyson Way bond investment until maturity.
Requirements
2. Journalize the entry required on the Tyson Way bonds maturity date. (Assume the last interest payment has already been recorded.)
Classifying and accounting for equity investments
Boston Today Publishers completed the following investment transactions during 2018 and 2019:
2018
Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.
23. Received a cash dividend of \)1.50 per share on the Loveable stock.
31. Adjusted the investment to its market value of \(11.00 per share.
2019
Jan. 27 Sold the Loveable stock for \)18.20 per share.
Requirements
On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?
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