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Chapter 10: Q.9RQ (page 566)
What adjustment must be made at the end of the period for trading debt investments and available-for-sale debt investments?
Answer
Adjustments for fair value are made at the year-end.
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Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
Requirements
How much cash interest will Advance receive each year from FermaCo?
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
Classify and prepare partial financial statements for Money Man鈥檚 25% Technomite investment for the year ended December 31, 2018.
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
Journalize the transactions related to Bryant鈥檚 investment in the Farrier stock during 2018.
Question: P10-23B Accounting for equity investments
The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).
During the year, Text Source completed the following investment transactions:
Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.
May 15 Received a cash dividend of \(0.69 per share on the Josh investment.
Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.
31 Received Taylor鈥檚 annual report showing \(100,000 of net income.
31 Received Josh鈥檚 annual report showing \)620,000 of net income for the year.
31 Taylor鈥檚 stock fair value at year-end was \(620,000.
31 Josh鈥檚 common stock fair value at year-end was \)14 per share.
Requirements
Journalize the transactions for the year of Text Source.
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
1. Journalize Hale and Sons鈥檚 transactions related to the bonds for 2018.
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