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Chapter 13: Q10P (page 658)

Question: (Equity Investments) Castleman Holdings, Inc. had the following equity investment portfolio at

January 1, 2017.

Evers Company 1,000 shares @ \(15 each \)15,000

Rogers Company 900 shares @ \(20 each 18,000

Chance Company 500 shares @ \)9 each 4,500

Equity investments @ cost 37,500

Fair value adjustment (7,500)

Equity investments @ fair value \(30,000

During 2017, the following transactions took place.

1. On March 1, Rogers Company paid a \)2 per share dividend.

2. On April 30, Castleman Holdings, Inc. sold 300 shares of Chance Company for \(11 per share.

3. On May 15, Castleman Holdings, Inc. purchased 100 more shares of Evers Company stock at \)16 per share.

4. On December 31, 2017, the stocks had the following price per share values: Evers \(17, Rogers \)19, and Chance \(8.

During 2018, the following transactions took place.

5. On February 1, Castleman Holdings, Inc. sold the remaining Chance shares for \)8 per share.

6. On March 1, Rogers Company paid a \(2 per share dividend.

7. On December 21, Evers Company declared a cash dividend of \)3 per share to be paid in the next month.

8. On December 31, 2018, the stocks had the following price per share values: Evers \(19 and Rogers \)21.

Instructions

(a) Prepare journal entries for each of the above transactions.

(b) Prepare a partial balance sheet showing the investment-related amounts to be reported on December 31, 2017, and 2018.

Short Answer

Expert verified

Answer:

Unrealized gain for the year 2018 is $4,200. Cash debited by $1,800 and dividend revenue credited by $1,800. Cash debited by $3,300, gain on sale of investment credited by $600 and equity investment credited by $2,700.

Step by step solution

01

Journal entries related to the transaction of the securities

Date

Particulars

Debit

Credit

2017

March 1

Cash

$1,800

Dividend Revenue

$1,800

(Being entry of the dividend received)

April 30

Cash

$3,300

Gain on sale of investment

$600

Equity investment

$2,700

(Being entry of the sale of investment)

May 15

Equity investment

$1,600

Cash

$1,600

(Being entry for the purchase of the investment)

December 31

Fair Value Adjustment

$8,500

Unrealized Holding income

$8,500

(Being entry for the fair value adjustment0

2018

February 1

Cash

$1,600

Loss on sale of investment

$200

Equity Investment

$1,800

(Being entry for the sale of the investment)

March 1

Cash

$1,800

Dividend Revenue

$1,800

(Being entry for the dividend revenue)

December 21

Dividend Receivable

$3,300

Dividend Revenue

$3,300

(Being entry for the Dividend receivable)

December 31

Fair Value Adjustment

$4,200

Unrealized Holding Income

$4,200

(Being entry for the fair value adjustment)

02

Partial balance sheet of Castleman Holding, Inc.

Partial Balance Sheet
Castleman Holding, Inc.

Particulars

31-12-2017

31-12-2018

Current Assets:

Dividend Receivables

$3,300

Investments:

Available for sale of securities (Fair Value)

$38,100

$37,900

Shareholder鈥檚 equity:

Accumulates other comprehensive gains

$8,500

$4,200

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Most popular questions from this chapter

Question: At what amount should trading, available-for-sale, and held-to-maturity debt securities be reported on the balance sheet?

(Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company (\(000 omitted).

Administrative expense

Officers鈥� salaries \)4,900

Depreciation of office furniture and equipment \(3,960

Cost of goods sold \)60,570

Rent revenue \(17,230

Selling expense

Delivery expense \)2,690

Sales commissions \(7,980

Depreciation of sales equipment \)6,480

Sales revenue \(96,500

Income tax \)9,070

Interest expense $1,860

Instructions

  1. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted).
  2. Prepare an income statement for the year 2017 using the single-step form.
  3. Which one do you prefer? Discuss.

Mayaguez Corporation provides its officers with bonuses based on net income. For 2017, the bonuses total $350,000 and are paid on February 15, 2018. Prepare Mayaguez鈥檚 December 31, 2017, adjusting entry and the February 15,2018, entry.

Dos Passos Company sells televisions at an average price of \(900 and also offers to each customer a separate 3-year warranty contract for \)90 that requires the company to perform periodic services and to replacedefective parts. During 2017, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warrantycosts as \(20 for parts and \)40 for labor, and accounts for warranties separately. Assume sales occurred on December 31,2017, and straight-line recognition of warranty revenues occurs.

Instructions

(a) Record any necessary journal entries in 2017.

(b) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it beclassified?

In 2018, Dos Passos Company incurred actual costs relative to 2017 television warranty sales of \(2,000 for parts and \)4,000 forlabor.

(c) Record any necessary journal entries in 2018 relative to 2017 television warranties.

(d) What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet andhow would they be classified?

(Debt Investments) Presented below is information from a bond investment amortization schedule with

related fair values provided. These bonds are classified as available-for-sale.

12/31/17 12/31/18 12/31/19

Amortized cost \(491,150 \)519,442 \(550,000

Fair value 497,000 509,000 550,000

Instructions

(a) Indicate whether the bonds were purchased at a discount or a premium.

(b) Prepare the adjusting entry to record the bonds at fair value on December 31, 2017. The Fair Value Adjustment account

has a debit balance of \)1,000 before adjustment.

(c) Prepare the adjusting entry to record the bonds at fair value on December 31, 2018.
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