Professional Documents
Culture Documents
Chapter 17 Homework
Chapter 17 Homework
1.
TRADING SECURITIES.
2.
3.
HELD TO MATURITY
(a) A bond that will mature in 4 years was bought 1 mo. ago, when the
price dropped. As soon as the value increases, which is expected
next month, it will be sold.
1
TRADING
b.
c.
d.
TRADING SECURITIES
Bonds that will mature in 5 years are purchased. The co. would
like to hold them until they mature, but money has been tight
recently, and they may need to be sold.
2
e.
Preferred stock was purchased for its constant dividend. The co.
is planning to hold the preferred stock for a long time.
2
f.
HELD TO MATURITY
Exercise 17-3
(b)
Date
1/1/06
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
Cash
$36,000
36,000
36,000
36,000
36,000
Interest Rev
$32,274.44
31,901.89
31,492.08
31.041.29
30,545.86
PremiumCarrying value
$3,725.56
4,098.11
4,507.92
4,958.71
5,454.14
322,744.44
319,018.88
314,920.77
310,412.85
305,454.14
300,000.00
c.
d.
Assume same info as 17-3, only consider the bonds to be SAS securities.
The FMV of bonds at 12/31/year end are:
2006
2007
2008
2009
2010
1.
$320,500
$309,000
$308,000
$310,000
$300,000
PURCHASE
SAS....... $322,744.44
Cash........$322,744.44
b.
MA-SAS....$1,481.12
UHG-EQ...........$1,481.12
c.
7,401.89
5,920.77
1,481.12
UHL-EQ.... $7,401.89
MA-SAS.........$7,401.89
On January 1, 2006,
Phantom Co. acquires
$200,000 of Spiderman
Products, Inc, 9% bonds
at a price of $185,589.
The interest is payable
each December 31, and the
bonds mature December
31, 2008.
The investment will provide Phantom Company a 12%
yield. The bonds are classified as HELD-TO-MATURITY.
Bond is issued at a discount or premium?
(a)
Date
1/1/06
Cash
Interest Revenue
----
12/31/06 $18,000
12/31/07 18,000
12/31/08 18,000
----$22,804
22,804
22,803
----$4,804
4,804
4,803
Carrying Amt
$185,589
190,393
195,197
200,000
Date
1/1/06
Cash
----
12/31/06 $18,000
12/31/07 18,000
12/31/08 18,000
Interest Revenue
----$22,270.68
22,783.16
23,357.16
----$4,270.68
4,783.16
5,357.16
Carrying Amt
$185,589
189.859.68
194,642.84
200,000
(c)
Cash $18,000
HTM.. 4,804
Interest Revenue.$22,804
(d)
Cash$18,000
HTM.. 4,783.16
Interest Revenue..$22,783
FMV
$48,000
22,000
---------$70,000
c.
On 12/21/06 Bucky Katt. provided you with the following info on its
trading securities:
12/31/06
Investments (Trading)
Clemson Corp. Stock
Colorado Co. Stock
Buffaloes Co. Stock
TOTAL
Cost
FMV
$20,000 $19,000
10,000
9,000
20,000 20,600
$50K
$48,600
Unrealized Gain(Loss)
$(1,000)
(1,000)
600
(1,400)
Previous securities
FMV adj
-0-
Securities fv adjustments
$(1400)
During 2007 CO co. stock was sold for $9,400. The FMV of the stock
on 12/31/07 was Clemson Corp stock- $19,100; Buffaloes Corp stock $20,500.
a.
b.
c.
Adjustment on 2007.
MA-TS $1K
UHG-IS $1K
Clemson
Buffaloes
TOTAL
Previous
Adjustment
Cost
$20K
20K
40K
FMV
10,000
9,000
UHG/L
FMV
Unrealized G or L
$17500
$15000
(2500)
12500
14000
1500
23000
25500
2500
$54,500
+$1,500
Total
$53,000
(a)
(b)
Current Assets
Securities Available for Sale.. $53,000
+ Market Adjustment.. 1,500
------------------------------------------------------$54,500
Stockholders Equity
C/S.xx
APIC.xx
RE..xx
AOCI. $1,500
(c)
On January 20, 2007 Steffi Graf. Inc sold Security A for $15,100. The sale proceeds
are net of brokerage fees.
At December 31, 2006 the Available-for-Sale
equity portfolio for Steffi Graf, Inc. is as follows.
Security
Cost
FMV
Unrealized G or L
$17500
$15000
(2500)
12500
14000
1500
23000
25500
2500
$54,500
$1,500
Total
$53,000
Cash.. $15,100
Loss. 2,400
SAS$17,500
1.
2.
Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding
stock. At the time of the purchase, Sub Co. had a book value of
$3,200,000. Sub Co. pays out 40% of net income in dividends each
year.
INSTRUCTIONS:
Use the information in the following T-account for the investment
in Sub to answer the following quesitons.
Investment in Sub
1,000,000
110,000
44,000
(a)
$110,000
THE DR. INCREASE
Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding
stock. At the time of the purchase, Sub Co. had a book value of
$3,200,000. Sub Co. pays out 40% of net income in dividends each
year.
INSTRUCTIONS:
Use the information in the following T-account for the investment
in Sub to answer the following quesitons.
Investment in Sub
1,000,000
110,000
44,000
(b)
$44,000
THE CR DECREASE
Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding
stock. At the time of the purchase, Sub Co. had a book value of
$3,200,000. Sub Co. pays out 40% of net income in dividends each
year.
INSTRUCTIONS:
Use the information in the following T-account for the investment
in Sub to answer the following quesitons.
Investment in Sub
1,000,000
110,000
44,000
(c)
Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding
stock. At the time of the purchase, Sub Co. had a book value of
$3,200,000. Sub Co. pays out 40% of net income in dividends each
year.
INSTRUCTIONS:
Use the information in the following T-account for the investment
in Sub to answer the following questions.
Investment in Sub
1,000,000
110,000
44,000
(d)
Jaycie Phelps acquired 20% of the outstanding common stock of Theresa Kulikowski Inc.
on December 31, 2006. The purchase price was $1,200,000 for 50,000 shares. Kulikowski
Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2007.
Kulikowski reported NI of $730,000 for 2007. The FMV of Kulikowskis stock was $27 per
share at December 31, 2007.
Kulikowski
PHELPS
Jaycie Phelps acquired 20% of the outstanding common stock of Theresa Kulikowski Inc.
on December 31, 2006. The purchase price was $1,200,000 for 50,000 shares. Kulikowski
Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2007.
Kulikowski reported NI of $730,000 for 2007. The FMV of Kulikowskis stock was $27 per
share at December 31, 2007.
(a)
Prepare the journal entries for Jaycie Phelps Inc. for 2006 & 07, assuming that Phelps
cannot exercise significant influence over Kulikowski. The securities should be classified
as available-for-sale.
PURCHASE 12/31/06?
Available-for-Sale (SAS)..$1,200,000
Cash..$1,200,000
Cash.$42,500
Dividend Revenue..$42,500
FMV adjustment:
Cost =$1,200,000
vs
FMV = $27 x 50,000 = $1,350,000
-------------------------------------------FMV increase $150,000
PHELPS
Kulikowski
Jaycie Phelps acquired 20% of the outstanding common stock of Theresa Kulikowski Inc.
on December 31, 2006. The purchase price was $1,200,000 for 50,000 shares. Kulikowski
Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2007.
Kulikowski reported NI of $730,000 for 2007. The FMV of Kulikowskis stock was $27 per
share at December 31, 2007.
(b)
Prepare the journal entries for Jaycie Phelps Inc. for 2006 & 07, assuming that Phelps
CAN exercise significant influence over Kulikowski.
PURCHASE 2006?
Investment in K. Stock..$1,200,000
Cash..$1,200,000
Cash.$42,500
Investment in K...$42,500
NI adjustment:
Kulikowskis NI = $730,000
x .20
---------$146,000
PHELPS
Kulikowski
Investment in K$146,000
Revenue from Investment..$146,000
(c)
Balance
Sheet
SAS$1,200,000
+
MA 150,000
-----------------------$ 1,350,000
EQUITY METHOD
Investment in K$1,261,000
Revenue from
investment $146,000
Cash
12/31/04
12/31/05 $7,000
12/31/06 7,000
12/31/07 7,000
12/31/08 7,000
12/31/09 7,000
Interest Revenue
$5,433
5,354
5,272
5,186
5,095
Carrying
$1,567
1,646
1,728
1,814
1,905
$108,660
107,093
105,447
103,719
101,905
100,000
The following schedule presents a comparison of the amortized cost and the FMV of the
bonds at year-end.
FMV
(a)
Prepare the entry to record the purchase of these bonds on December 31, 2004
assuming that the bonds are classified as HTM. Paid $108,660.
HTM.$108,660
Cash.$108,660
(b)
Prepare the journal entry(ies) related to the HTM bonds for 2005.
(next slide)
(b)
Prepare the journal entry(ies) related to the HTM bonds for 2005.
Cash. $7,000
Interest Revenue.$5,433
HTM.$1,567
Date
Cash
12/31/04
12/31/05 $7,000
12/31/06 7,000
12/31/07 7,000
12/31/08 7,000
12/31/09 7,000
amortized cost
FMV
Interest Revenue
$5,433
5,354
5,272
5,186
5,095
Carrying
$1,567
1,646
1,728
1,814
1,905
$108,660
107,093
105,447
103,719
101,905
100,000
(c)
Prepare the journal entry(ies) related to the HTM bonds for 2007.
Cash. $7,000
Interest Revenue.$5,272
HTM.$1,728
Date
Cash
12/31/04
12/31/05 $7,000
12/31/06 7,000
12/31/07 7,000
12/31/08 7,000
12/31/09 7,000
amortized cost
FMV
Interest Revenue
$5,433
5,354
5,272
5,186
5,095
Carrying
$1,567
1,646
1,728
1,814
1,905
$108,660
107,093
105,447
103,719
101,905
100,000
(d)
Prepare the entry to record the purchase of these bonds, assuming they are
classified as available-for sale
Available-for-sale.$108,660
Cash$108,660
(e)
Prepare the journal entry(ies) related to the available for sale bonds for 2005.
Cash. $7,000
Interest Revenue.$5,433
SAS...$1,567
AND
UHL-EQ..$593
MA-SAS..$593
(107,093-106,500) = (593)
Date
Cash
12/31/04
12/31/05 $7,000
12/31/06 7,000
12/31/07 7,000
12/31/08 7,000
12/31/09 7,000
amortized cost
FMV
Interest Revenue
$5,433
5,354
5,272
5,186
5,095
Carrying
$1,567
1,646
1,728
1,814
1,905
$108,660
107,093
105,447
103,719
101,905
100,000
(f)
Prepare the journal entry(ies) related to the SAS bonds for 2007.
+1,931 needed now
Cash. $7,000
Interest Revenue.$5,272
SAS...$1,728
Date
Cash
12/31/04
12/31/05 $7,000
12/31/06 7,000
12/31/07 7,000
12/31/08 7,000
12/31/09 7,000
amortized cost
FMV
Interest Revenue
$5,433
5,354
5,272
5,186
5,095
Carrying
$1,567
1,646
1,728
1,814
1,905
$108,660
107,093
105,447
103,719
101,905
100,000
Presented below is information taken from a bond investment amortization schedule with
related FMVs provided. These bonds are classified as SAS.
12/31/06
12/31/07
12/31/08
Amortized Cost
$491,150
$519,442
$550,000
FMV
$499,000
$506,000
$550,000
(a)
Presented below is information taken from a bond investment amortization schedule with
related FMVs provided. These bonds are classified as SAS.
12/31/06
12/31/07
12/31/08
Amortized Cost
$491,150
$519,442
$550,000
FMV
$499,000
$506,000
$550,000
$7,850 +
(b)
MA-SAS.. $6,850
UHG-EQ$6,850
Presented below is information taken from a bond investment amortization schedule with
related FMVs provided. These bonds are classified as SAS.
12/31/06
12/31/07
12/31/08
Amortized Cost
$491,150
$519,442
$550,000
FMV
$499,000
$506,000
$550,000
- 13,442
(c)
UHL-EQ.. $21,292
MA-SAS$21,292
Security
Favre Inc.
Brady Corp.
McNabb Co.
Unrealized HoldingPercent
Loss-EQ $48,000
Quantity Market Adjustment
Interest EQ $48,000
Cost
2,000 sh.
8%
$11
5,000 sh.
14%
23
4,000 sh.
2%
31
Market
$16
17
24
INSTRUCTIONS:
(a).
FV analysis
Favre Inc.
Brady Corp.
McNabb Co.
Cost
FV
2,000 x 11 = $22,000
5,000 x 23 = $115,000
4,000 x 31 = $124,000
$261,000
$32,000
$85,000
UHG(L)
+$10,000 UHG
-$30,000 UHL
$96,000
-$28,000 UHL
$213,000
-$48,000 UHL
$261,000
48,000
$213,000
Stockholders Equity
Common stock
$ xx
APIC
xx
RE
xx
(48,000)
$
xx
Market
30
23
23
Cost
FV
$115,000
$174,000
$289,000
$150,000
UHG(L)
+$35,000 UHG
$138,000
-$36,000 UHL
$288,000
-$1,000
$289,000
1,000
$288,000
Stockholders Equity
Common stock
$ xx
APIC
xx
RE
xx
(1,000)
$
xx
(c). Assuming that comparative financial statements for 2006 and 2007 are presented,
draft the footnote necessary for full disclosure of Woolfords transactions
and position in equity securities.
Note: Investments.
The FV and UHG/L of equity securities were as follows:
December 31, 2006
SAS
Equity Sec.
Gross Unrealized
Cost
Gains
$289,000
$35,000
Losses
$(36,000)
FV
$288,000
Losses
$(58,000)
FV
$213,000
Gross Unrealized
Cost
Gains
$261,000
$10,000
Big Brother Holdings Inc. had the following available-for-sale investment portfolio at
January 1, 2006:
Earl Company.. 1000 sh @ $15 each..
$15,000
Josie Company.
900 sh @ $20 each
18,000
David Company..
500 sh @ $9 each
4,500
----------------------------------------------------------------------------------------------------------Available for Sale securities at cost..
$37,500
FV adjustment (SAS)
(7,500)
----------------------------------------------------------------------------NET at FMV
$30,000
=======
INSTRUCTIONS:
(a)
900 sh x $2 = $1800
Cash. $1,800
Dividend Revenue.$1,800
2.
On April 30, Big Brother Holdings Inc. sold 300 shares of David Company
for $10 per share.
COST = $9 vs FMV = $10; $1 x 300 = $300 gain
Cash$3,000
SAS $2,700 (cost)
GAIN. $300
3.
4.
Josie
$18,000
David
$1,800 (left)
vs $1600 fmv = (200)
-----------------------------------------------------------------------------$35,600
$36,550
$+950
vs
PREVIOUS
-7,500
-------------------------------------------------------------------------------ADJUSTMENT
+$8,450
On February 1, Big Brother Holdings sold the remaining David shares for $7 a share.
Cash..$1400
LOSS. 400
SAS$1800
7.
At December 31, 2007, the stocks had the following price per share values:
Earl $19, Josie $21.
Earl
Josie
MA-SAS..$4100
UHG-EQ$4100
(b)
2007
Dividend Receivable. $3,150
SAS. $35,600
+
MA.. 950
----------------------------------------at FMV
$36,550
SAS. $33,800
+
MA.. 5,050
-----------------------------at FMV $38,850