Chapter 17 - Group Work

1. On January 1, 2014, XYZ company purchased 10% Bonds, having a maturity value of $200,000, for $227,181.
The bonds provide bondholders with an 8% yield and mature in 10 years. Interest is paid on July 1 st and
December 31st of each year. The bonds are classified as Held-to-Maturity and will be reported using the
effective interest method.
a) Prepare an amortization table for the 1st and 2nd year of the bond.
Cash Recd
7/1
10,000
12/31
10,000
7/1
10,000
12/31 10,000

Interest Rev
9,087
9,051
9,013
8,973

Prem Amort
913
949
987
1,027

Carrying Value
226,268
225,319
224,332
223,305

b) Prepare the journal entry to be made on January 1, 2014 for the purchase of this bond investment.

Held-to-Maturity Securities
Cash

DR
227,181

CR
227,181

c) Prepare the journal entry to be made on July 1, 2014 for this bond investment.

Cash

DR
10,000
Interest Revenue
Held-to-Maturity Securities

CR
9,087
913

d) Prepare the journal entry to be made on December 31, 2014 for this bond investment.

Cash

DR
10,000
Interest Revenue
Held-to-Maturity Securities

CR
9,051
949

e) What is the total interest revenue reported on the Income Statement in 2014 for this bond?

$18,138

f) What is the new carrying value or balance of the Held-to-Maturity securities account on December 31, 2014?

$225,319

2. On January 1, 2014, ABC company purchased 5% bonds, with a maturity value of $100,000 for $92,522. The
bonds provide bondholders with a 6% yield and mature in 10 years. Interest is paid on July 1 st and December 31st
of each year. The bonds are classified as Available-for-Sale and will be reported using the effective interest
method.
a) Prepare an amortization table for the 1st year of the bond.
Cash Recd
7/1
2,500
12/31
2,500

Interest Rev
2,776
2,784

Disct Amort
276
284

Carrying Value
92,798
93,082

b) Prepare the journal entry to be made on January 1, 2014 for the purchase of this bond investment.
Available-for-Sale Securities
Cash

DR
92,522

CR
92,522

c) Prepare the journal entry to be made on July 1, 2014 for this bond investment.
DR
Cash
2,500
Available-for-Sale Securities
276
Interest Revenue

CR

2,776

d) Prepare the journal entry to be made on December 31, 2014 for this bond investment.
DR
Cash
2,500
Available-for-Sale Securities
284
Interest Revenue

CR

2.784

e) What is the total bond interest revenue reported on the Income Statement in 2014 for this bond?

$5,560

f) What is the new carrying value or balance of the Available-for-Sale securities account at December 31, 2014?

$93,082
3. a)

At December 31, 2014, ABC company held the following Available-for-Sale securities and values.

Available-for-Sale Security A
Available-for-Sale Security B

Amortized Cost

Fair Value

$93,124
$103,050

$82,500
$105,700

$196,174

$188,200

Prepare a journal entry to adjust the Available-for-Sale security investments to fair value assuming no
beginning balance in the Adjustment account.

Unrealized Loss on AFS Securities - OCI Equity

Adjustment to Fair Value-AFS Securities

DR
7,974

CR
7,974

If the security investments were classified as Trading securities, what would have been the journal entry to
adjust the Trading security investments to fair value?

Unrealized Loss on Trading Securities - Income

Adjustment to Fair Value-Trading Securities

DR
7,974

CR
7,974

b) At December 31, 2015, the following year, ABC companys Available-for-Sale securities had the
following values.

Available-for-Sale Security A
Available-for-Sale Security B

Amortized Cost

Fair Value

$93,721
$104,600
$198,321

$94,600
$105,300
$199,900

Prepare a journal entry to adjust Available-for-Sale security investments to fair value. Assume there is
currently a beginning credit balance of $7,974 in the adjustment account.
DR
Adjustment to Fair Value AFS Securities
9,553
Unrealized Gain on AFS Securities OCI Equity

CR
9,553

If the security investments were classified as Trading securities, what would have been the journal entry to
adjust the Trading security investments to fair value?
DR
Adjustment to Fair Value Trading Securities
9,553
Unrealized Gain on Trading Securities Income

CR
9,553

4. a) On September 1, 2014, XYZ company purchased common stock from 3 companies all representing less
than 20% of the voting stock outstanding.
Maddow Inc.

Cost
$55,000

Smith Inc.
Rudolph Inc.

$120,000
$78,000
$253,000

Prepare a journal entry to record the purchase assume they are considered Available-For-Sale securities.
DR
$253,000

Available For Sale Securities

Cash

CR
$253,000

b) On December 30, 2014, a cash dividend of $2,000 was received. Prepare the journal entry to record this
transaction.
DR
$2,000

Cash
Dividend Revenue

CR
$2,000

c) At December 31, 2014, XYZ companys stock portfolio had the following values.
Maddow Inc.
Smith Inc.
Rudolph Inc.

Cost
$55,000
$120,000
$78,000
$253,000

Fair Value
$68,600
$128,200
$65,500
$262,300

Prepare the journal entry to adjust XYZ companys stock investments to fair value assuming they are
classified as:
1- Available-for-Sale securities
DR

CR

Adjustment to Fair Value AFS Securities

$9,300
Unrealized Gain on AFS Securities OCI Equity

$9,300

2- Trading securities
DR

CR

Adjustment to Fair Value Trading Securities

$9,300
Unrealized Gain on Trading Securities Income
d)

$9,300

On March 20, 2015, all shares of the Smith Inc. stock was sold for $127,500. Prepare the necessary journal
entry.
DR
Cash

CR

$127,500
AFS Securities
Realized Gain on Sale

$120,000
$7,500

e) At December 31, 2015, assume the following fair values of the remaining stocks.
Maddow Inc.
Rudolph Inc.

Cost
$55,000
$78,000
$133,000

Fair Value
$40,200
$69,500
$109,700

Assume the Adjustment account has a beginning Debit balance of $9,300. Prepare a journal entry to adjust
the security investments to fair value assuming they are classified as:
1- Available-for-Sale securities
DR
Unrealized Loss on AFS Securities OCI Equity
Adjustment to Fair Value AFS Securities

CR

$32,600
$32,600

2- Trading securities
DR
Unrealized Loss on Trading Securities Income
Adjustment to Fair Value Trading Securities

CR

$32,600
$32,600

5. a) On January 1, 2014, XYZ Co. purchased 30% of Raider Inc.s voting stock for $420,000 at $30 p/share.
Prepare the necessary journal entry.
DR
Raider Inc. Investment
Cash

b)

$420,000
$420,000

At December 31, 2014, Raider Inc. reported $150,000 of Net Income for the period. Our share was $45,000. Prepare the necessary journal entry.
DR
Raider Inc. Investment
Investment Income

c)

CR

CR

$45,000
$45,000

At December 31, 2014 the shares of Raider Inc. in our portfolio had a fair value of $468,000. Prepare a
journal entry for this change in fair value if necessary.
No Entry

d)

On January 20, 2015, Raider Inc. announced and paid a cash dividend of $65,000 our share $19,500.
Prepare the necessary journal entry.
DR
Cash

CR

$19,500
Raider Inc. Investment

$19,500

f) At December 31, 2015, Raider Inc. reported a Net Loss of $86,000 our share $25,800. Prepare the
journal entry.
DR
Loss on Investment
$25,800
Raider Inc. Investment

CR
$25,800