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Chapter 10: Q18PGA_2 (page 572)

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.)

Short Answer

Expert verified

Journal entry at maturity will includean increase in cash and a decrease in investment.

Step by step solution

01

Definition of Debt Investment

The investment made by the company that include the debt securities purchased from other company is known as debt investment.

02

Journal Entry on Maturity Date

Date

Accounts and Explanation

Debit $

Credit $

31 Dec 2022

Cash

$500,000

Held-to-maturity 鈥� debt investment

$500,000

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Most popular questions from this chapter

As a result of the recent mortgage crisis, many banks reported record losses to their mortgage receivables and other assets based on the decline in these assets鈥� fair values.

Requirements

If a business chooses not to report these losses, is there an ethical issue involved? Who is hurt?

How is the purchase of a held-to-maturity debt security at face value recorded?

When disposing of an available-for-sale debt investment, where is the gain or loss on disposal reported in the financial statements?

Accounting for equity investments

On January 1, 2018, Bark Company invests \(10,000 in Roots, Inc. stock. Roots pays Bark a \)400 dividend on August 1, 2018. Bark sells the Roots鈥檚 stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.

Requirements

1. Journalize the transactions for Bark鈥檚 investment in Roots鈥檚 stock.

Question: S10-7 Computing rate of return on total assets

Barot鈥檚 2018 financial statements reported the following items鈥攚ith 2017 figures given for comparison:

BAROT INC

Balance Sheet

As of December 31, 2018 and 2017

2018

2017

Total assets

\(32,978

\)30,660

Total liabilities

19,400

11,560

Total stockholder鈥檚 equity

13,578

19,100

Total liabilities and stockholder鈥檚 equity

\(32,978

\)30,660

Net income for 2018 was \(3,910, and interest expense was \)240. Compute Barot鈥檚 rate of return on total assets for 2018. (Round to the nearest percent.)
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