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Chapter 10: Q5RQ. (page 566)
How is the purchase of a held-to-maturity debt security at face value recorded?
Journal entry will includedebit or held to maturity debt investment andcredit to cash. It will be done at the face value of the investment.
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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
In what category and at what value would Josh report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Jackrabbit鈥檚 stock be reported, if at all?
Accounting for equity investments
Captain Investments completed the following investment transactions during 2018:
Jan. 14 Purchased 200 shares of Velcon stock, paying \(53 per share. The investment represents 4% ownership in Velcon鈥檚 voting stock. Captain does not have significant influence over Velcon. Captain intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of \)0.28 per share on the Velcon stock.
Dec. 31 Adjusted the Velcon investment to its current market value of $58.
Requirements
Journalize the entries for 2018. Explanations are not required.
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: S10-7 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.)
Question: S10-5 Accounting for debt investments
On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.
Requirements
2. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant鈥檚 bond be reported, if at all?
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