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Chapter 13: Q3Q (page 658)
Question: What is the cost of a long-term investment in bonds?
Answer:
The cost of the long term is the cost of acquisition and brokerage fees, etc.
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BE13-3 (L01) Takemoto Corporation borrowed \(60,000 on November 1, 2017, by signing a \)61,350, 3-month, zero-interest bearing note. Prepare Takemoto鈥檚 November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.
Journal Entries for Fair Value and Equity Methods) The following are two independent situations.
Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of \(13 per
share on March 18, 2017. On June 30, Martinez declared and paid \)75,000 cash dividends to all stockholders. On December 31,
Martinez reported net income of \(122,000 for the year. At December 31, the market price of Martinez Fashion was \)15 per share.
Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles鈥檚 30,000 outstanding shares
of common stock at a total cost of \(9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of \)36,000
to all stockholders. On December 31, Seles reported a net income of $85,000 for the year.
Instructions
Prepare all necessary journal entries in 2017 for both situations.
How should a debt callable by the creditor be reported in the debtor鈥檚 financial statements?
(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.
The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.鈥檚 available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities
were purchased during the year. Acker Inc.鈥檚 income statement for 2017 was as follows. (Ignore income taxes.)
ACKER INC.
BALANCE SHEET
AS OF JANUARY 1, 2017
Assets Equity
Cash \( 50,000 Common stock \)260,000
Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000
Total \(290,000 Total \)290,000
ACKER INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Dividend revenue \( 5,000
Gain on sale of investments 30,000
Net income \)35,000
Instructions
(Assume all transactions during the year were for cash.)
(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.
(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.
(c) Prepare a statement of comprehensive income for 2017.
(d) Prepare a balance sheet as of December 31, 2017.
Question: Explain how trading debt securities are accounted for and reported?
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