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Chapter 17 Homework Day 1. Exercise 17-1. For the following investments, identify whether they are: TRADING SECURITIES. AVAILABLE FOR SALE HELD TO MATURITY. 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

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Chapter 17

Homework Day 1


Exercise

17-1


  • 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


2 SECURITY AVAILABLE FOR SALE

  • 10-year bonds were purchased this year. The bonds mature at

  • the first of next year.

1 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 SECURITY AVAILABLE FOR SALE


2 SECURITY AVAILABLE FOR SALE

  • A bond that matures in 10 years was purchased. The company

  • is investing money set aside for an expansion project planned

  • 10 years from now.

3 HELD TO MATURITY


Exercise 17 3
Exercise 17-3 The co.


On January 1, 2006 Hi and Lois Co. purchased 12% bonds, having a MV

of $300,000, for $322,744.44. The bonds provide the bondholders with a 10%

yield. They are dated January 1, 2006, and mature January 1, 2011, with interest

receivable December 31 of each year. Hi and Lois Co. use the effective interest

method to allocate unamortized discount or premium. The bonds are classified

as HTM.

(a) Prepare the journal entry at the date of bond purchase.

HTM……………. $322,744.44

Cash…………………….$322,744.44

(b) Prepare a bond amortization table:

next page


Date Cash Interest Rev Premium Carrying value having a MV

1/1/06 322,744.44

12/31/06 $36,000 $32,274.44 $3,725.56 319,018.88

12/31/07 36,000 31,901.89 4,098.11 314,920.77

12/31/08 36,000 31,492.08 4,507.92 310,412.85

12/31/09 36,000 31.041.29 4,958.71 305,454.14

12/31/10 36,000 30,545.86 5,454.14 300,000.00


c. Prepare the journal entry to record interest for 2006. having a MV

Cash………… $36,000

HTM………………….$3,725.56

Interest Revenue……. $32,274.44

d. Prepare the journal entry to record interest for 2007.

Cash…………….. $36,000

HTM…………………..$4,098.11

Interest Revenue…….. $31,901.89


E 17-4 having a MV


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 $320,500

2007 $309,000

2008 $308,000

2009 $310,000

2010 $300,000

1. PURCHASE

SAS....... $322,744.44

Cash........$322,744.44


b. Interest received and recognition of FMV for 2006. securities.

Cash....... $36,000

SAS.........$3,725.56

Interest Rev.. $32,274.44

FMV

$320,500 new FMV

-

$319,018.88

----------------

$1,481 UHG-EQ

MA-SAS....$1,481.12

UHG-EQ...........$1,481.12


c. FMV for 2007 securities.

Adjusted Cost...$314,920.77 (from table)

vs

FMV............ 309,000

-----------

(5,920.77) LOSS

UHG/L

1,481.12

UHL-EQ.... $7,401.89

MA-SAS.........$7,401.89

7,401.89

5,920.77


Exercise 17-5 securities.


On January 1, 2006, securities.

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?

DISCOUNT

  • Prepare a 3-year schedule of interest revenue and bond discount amortization,

  • applying the straight-line method.


Date Cash Interest Revenue Bond Disc Amortz Carrying Amt securities.

1/1/06 ---- ----- ----- $185,589

12/31/06 $18,000 $22,804 $4,804 190,393

12/31/07 18,000 22,804 4,804 195,197

12/31/08 18,000 22,803 4,803 200,000

(b) Prepare a 3-year schedule of interest revenue

and bond discount amortization applying

the EFFECTIVE INTEREST METHOD.


Date Cash Interest Revenue Bond Disc Amortz Carrying Amt securities.

1/1/06 ---- ----- ----- $185,589

12/31/06 $18,000 $22,270.68 $4,270.68 189.859.68

12/31/07 18,000 22,783.16 4,783.16 194,642.84

12/31/08 18,000 23,357.16 5,357.16 200,000


Cash…………… $18,000

HTM………….. 4,804

Interest Revenue……….$22,804

(d) Prepare the journal entry for the interest receipt

of December 31, 2007 and the discount amortization

under the effective interest method.

Cash…………$18,000

HTM………….. 4,783.16

Interest Revenue……..$22,783


Exercise 17-6 securities.


MA-TS....$5,000

UHG-IS.......$5,000

b. Prepare adjustments if they are classified as SAS.

MA-SAS $5000

UHG-EQ $5000



Exercise 17-7 in a and b.


On 12/21/06 Bucky Katt. provided you with the following info on its

trading securities:

12/31/06

Investments (Trading) Cost FMV Unrealized Gain(Loss)

Clemson Corp. Stock $20,000 $19,000 $(1,000)

Colorado Co. Stock 10,000 9,000 (1,000)

Buffaloes Co. Stock 20,000 20,600 600

TOTAL $50K $48,600 (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.


UHL/G-IS....$1400

MA-TS.........$1400

b. Prepare the entry to record the sale of CO during 2007.

During 2007 CO co. stock was sold for $9,400.

Cash........ $9400

Loss........ 600

TS............$10,000

CostFMV

Colorado Co. Stock 10,000 9,000

c. Adjustment on 2007.

Cost FMV UHG/L

Clemson $20K $19,100 (900) clemson

Buffaloes 20K 20,500 500 buffalos

TOTAL 40K 39,600 (400)

Previous (1400)

Adjustment +$1000

MA-TS $1K

UHG-IS $1K



At December 31, 2006 the Available-for-Sale on its

equity portfolio for Steffi Graf, Inc. is as follows.

SecurityCostFMVUnrealized G or L

A $17500 $15000 (2500)

B 12500 14000 1500

C 23000 25500 2500

Total $53,000 $54,500 +$1,500

Previous fair value (market) adjustment

was a $400 DR balance.

This year’s FV (market) adjustment is an $1,100 DR

On January 20, 2007 Steffi Graf. Inc sold Security A for $15,100. The sale proceeds

are net of brokerage fees.


(a) Prepare the ADJUSTING ENTRY at 12/31/06 to report the portfolio at FMV.

Market adjustment (SAS)…….. $1,100

Unrealized Holding Gain-EQ…………..$1,100

  • Show the B/S presentation of the investment related accounts at

  • 12/31/06 ignoring footnotes.

Current Assets

Securities Available for Sale…….. $53,000

+ Market Adjustment…………….. 1,500

-------------------------------------------------------

$54,500

Stockholder’s Equity

C/S……………….xx

APIC…………….xx

RE………………..xx

AOCI……………. $1,500


(c) Prepare the journal entry for the 2007 sale of Security A.

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.

SecurityCostFMVUnrealized G or L

A $17500 $15000 (2500)

B 12500 14000 1500

C 23000 25500 2500

Total $53,000 $54,500 $1,500

Cash….. $15,100

Loss……. 2,400

SAS………$17,500



  • Presented below are two independent situations: A.

  • Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of

  • Martinez Fashion at a total cost of $13/share on March 18, 2007. On June 30,

  • Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez

  • reported NI of $122,000 for the year. At December 31, the market price of

  • Martinez Fashion was $15/sh. The securities are classified as Available-For-Sale.

INSTRUCTIONS:

Prepare all necessary journal entries in 2007 for both situations.

  • Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of

  • Martinez Fashion at a total cost of $13/share on March 18, 2007.

SAS…………… $260,000

CASH………… $260,000


On June 30, Martinez declared and paid a $75,000 cash dividend.

Cash……… $7,500

Dividend Revenue……….. $7,500

On December 31, Martinez reported NI of $122,000 for the year.

No Entry

At December 31, the market price of Martinez Fashion was $15/sh.

($15-$13) * 20,000sh = $40,000

Market Adjustment (MA) – SAS……. $40,000

Unrealized Holding Gain (UHG/L) EQUITY $40,000


  • Monica, Inc. obtained dividend.significant influence over Seles Corporation by

  • buying 30% of Sele’s 30,000 outstanding shares of common stock at

  • a total cost of $9/sh on January 1, 2007. On June 15, Seles declared

  • and paid a cash dividend of $36,000. On December 31, Seles reported

  • a net income of $85,000 for the year.

buying 30% of Sele’s 30,000 outstanding shares of common stock at

a total cost of $9/sh on January 1, 2007

.30 (30,000) x $9/sh = $81,000

Investment in Seles………… $81,000

Cash…………………………$81,000


On June 15, Seles declared and paid a cash dividend of $36,000

$36,000 x .30 = $10,800

Cash…….. $10,800

Investment in Seles……… $10,800

On December 31, Seles reported a net income of $85,000 for the year.

$85,000 x .30 = $25,500

Investment in Seles….. $25,500

Revenue from investment…….…… $25,500

No Fair Value Adjustment



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

  • How much was Parent Co’s share of

  • Sub’s Co’s NI for the year?

1,000,000

110,000 44,000

$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

  • How much was Parent Co’s share of Sub

  • Co’s dividends for the year?

1,000,000

110,000 44,000

$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

  • What was Sub’s TOTAL NET INCOME

  • for the year?

1,000,000

110,000 44,000

$110,000 = TOTAL x .25

Total = $440,000


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

  • What was Sub Co’s TOTAL DIVIDENDS

  • for the year.

1,000,000

110,000 44,000

$44,000 = Total x .25

Total = $176,000 represents

the total DIVIDENDS PAID

OUT.


Exercise 17-16 outstanding


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 Kulikowski’s 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 Kulikowski’s stock was $27 per

share at December 31, 2007.

  • 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?

June 30 dividend paid 2007.

Available-for-Sale (SAS)……..$1,200,000

Cash………………………..$1,200,000

$0.85 x 50,000sh = $42,500

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

December 31 another dividend paid and EOY

Cash…….$42,500

Dividend Revenue…..$42,500

MA-SAS…….$150,000

UHG-EQ………$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 Kulikowski’s 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?

June 30 dividend paid 2007.

Investment in K. Stock……..$1,200,000

Cash………………………..$1,200,000

$0.85 x 50,000sh = $42,500

Cash…….$42,500

Investment in K….…..$42,500

NI adjustment:

Kulikowski’s NI = $730,000

x .20

----------

$146,000

December 31 another dividend paid and EOY

Cash…….$42,500

Investment in K………..$42,500

Investment in K……$146,000

Revenue from Investment…..$146,000

PHELPS

Kulikowski


EQUITY METHOD

SAS

Balance

Sheet

SAS…$1,200,000

+

MA…… 150,000

------------------------

$ 1,350,000

Investment in K…$1,261,000

Dividend Revenue $85,000

Revenue from

investment……… $146,000

Income

Statement


Problem the balance sheet

17-1


Presented below is an amortization schedule related to Kathy Baker Company’s 5-year,

$100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2004

for $108,660.

Date Cash Interest Revenue Bond Prem Amtz Carrying

12/31/04 $108,660

12/31/05 $7,000 $5,433 $1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,905 100,000


The following schedule presents a comparison of the amortized cost and the FMV of the

bonds at year-end.

12/31/0512/31/0612/31/0712/31/0812/31/09

amortized cost $107,093 $105,447 $103,719 $101,905 $100,000

FMV $106,500 $107,500 $105,650 $103,000 $100,000


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

12/31/0512/31/0612/31/0712/31/0812/31/09

amortized cost $107,093 $105,447 $103,719 $101,905 $100,000

FMV $106,500 $107,500 $105,650 $103,000 $100,000

Date Cash Interest Revenue Bond Prem Amtz Carrying

12/31/04 $108,660

12/31/05 $7,000 $5,433 $1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,905 100,000


(c) Prepare the journal entry(ies) related to the HTM bonds for 2007.

Cash………. $7,000

Interest Revenue….$5,272

HTM……………….$1,728

12/31/0512/31/0612/31/0712/31/0812/31/09

amortized cost $107,093 $105,447 $103,719 $101,905 $100,000

FMV $106,500 $107,500 $105,650 $103,000 $100,000

Date Cash Interest Revenue Bond Prem Amtz Carrying

12/31/04 $108,660

12/31/05 $7,000 $5,433 $1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,905 100,000


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)

12/31/0512/31/0612/31/0712/31/0812/31/09

amortized cost $107,093 $105,447 $103,719 $101,905 $100,000

FMV $106,500 $107,500 $105,650 $103,000 $100,000

Date Cash Interest Revenue Bond Prem Amtz Carrying

12/31/04 $108,660

12/31/05 $7,000 $5,433 $1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,905 100,000


(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

$2,053 - $1,931 = $122

UHL-EQ… $122

MA-SAS…….$122

UHG of

$2053 carry

forward from

last year

12/31/0512/31/0612/31/0712/31/0812/31/09

amortized cost $107,093 $105,447 $103,719 $101,905 $100,000

FMV $106,500 $107,500 $105,650 $103,000 $100,000

Date Cash Interest Revenue Bond Prem Amtz Carrying

12/31/04 $108,660

12/31/05 $7,000 $5,433 $1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,905 100,000


Problem for 2007.

17-4


Presented below is information taken from a bond investment amortization schedule with

related FMVs provided. These bonds are classified as SAS.

12/31/0612/31/0712/31/08

Amortized Cost $491,150 $519,442 $550,000

FMV $499,000 $506,000 $550,000

(a) Indicate whether the bonds were purchased at a DISCOUNT or PREMIUM.

DISCOUNT


Presented below is information taken from a bond investment amortization schedule with

related FMVs provided. These bonds are classified as SAS.

12/31/0612/31/0712/31/08

Amortized Cost $491,150 $519,442 $550,000

FMV $499,000 $506,000 $550,000

$7,850 +

  • Prepare the adjustment entry to record the bonds at FMV at 12/31/06.

  • The securities FV adjustment has a debit balance of $1,000 prior to adjustment.

+$7,850 UHG needed

vs

1,000 UHG exists (MA is DR balance)

---------------------------------------------------

+$6,850 adjustment

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.

12/31/0612/31/0712/31/08

Amortized Cost $491,150 $519,442 $550,000

FMV $499,000 $506,000 $550,000

- 13,442

(c) Prepare the adjusting entry to record the bonds at FMV at 12/31/07.

+$7,850 UHG exists

vs

-13,442 needed (519,442 – 506,000)

---------------------------------------------------

- $21,292 adjustment

UHL-EQ…….. $21,292

MA-SAS………$21,292


Problem amortization schedule with

17-9


Woolford Co. has the following portfolio of SAS securities at 12/31/06.

Per Share

Percent

Security Quantity Interest CostMarket

Favre Inc. 2,000 sh. 8% $11 $16

Brady Corp. 5,000 sh. 14% 23 17

McNabb Co. 4,000 sh. 2% 31 24

Unrealized Holding Loss-EQ $48,000

Market Adjustment – EQ $48,000

INSTRUCTIONS:

(a). What should be reported on Woolford’s 12/31/06 BS relative to these

long-term SAS securities?

FV analysis

Cost FV UHG(L)

2,000 x 11 = $22,000

$32,000

+$10,000 UHG

Favre Inc.

Brady Corp.

5,000 x 23 = $115,000

$85,000

-$30,000 UHL

McNabb Co.

-$28,000 UHL

4,000 x 31 = $124,000

$96,000

$261,000

-$48,000 UHL

$213,000


Balance Sheet as of December 31, 2006 at 12/31/06.

Long-term investments

Available for Sale Securities, at cost $261,000

Less: Securities fair value adjustment 48,000

Available for sale securities, at fair value

$213,000

Stockholders’ Equity

Common stock $ xx

APIC xx

RE xx

Accumulated other comprehensive income (48,000)

Total Stockholder’s Equity…. $ xx


On December 31, 2007 Woolford’s portfolio of SAS securities consisted of

the following common stocks: At the end of year 2007 Woolford changed its

intent relative to its investment in Favre Inc and reclassified the shares

to trading securities status when the shares were selling for $9 per share.

Unrealized Holding Loss-EQ $1,000

Market Adjustment-SAS….. $1,000

Per Share

Percent

Security Quantity Interest CostMarket

Brady Corp. 5,000 sh. 14% 23 30

McNabb Co. 4,000 sh. 2% 31 23

McNabb Co. 2,000 sh. 1% 25 23

Market Adjustment-SAS…. $48,000

Unrealized Holding Loss-EQ $48,000

(b). What should be reported on the face of Woolford’s 12/31/07 BS relative

to available for sale securities investments?

UHG/L-EQ

FV analysis

Cost FV UHG(L)

$48,000

$48,000

Brady Corp.

$115,000

$150,000

+$35,000 UHG

$1,000

McNabb Co.

$174,000

$138,000

-$36,000 UHL

$1,000

$289,000

$288,000

-$1,000

REMOVE PREVIOUS UHL of $48,000


Balance Sheet as of December 31, 2007 securities consisted of

Long-term investments

Available for Sale Securities, at cost $289,000

Less: Securities fair value adjustment 1,000

Available for sale securities, at fair value

$288,000

Stockholders’ Equity

Common stock $ xx

APIC xx

RE xx

Accumulated other comprehensive income (1,000)

Total Stockholder’s Equity…. $ xx

FOOTNOTE: on next page about Favre.


Favre securities are transferred to the trading category at FAIR VALUE,

which becomes the NEW COST BASIS of the security. The unrealized

holding loss of $4,000 ($11-$9) is recognized in earnings at the date of the

transfer. Any UHG/L-EQ attached to this security would have been removed

when the $48,000 was backed out.

TS……….$18,000 (2000sh x 9)

UHL-IS…$ 4,000

SAS……………..$22,000 (2000 x 11)


(c). Assuming that comparative financial statements for 2006 and 2007 are presented,

draft the footnote necessary for full disclosure of Woolford’s transactions

and position in equity securities.

Note: Investments.

The FV and UHG/L of equity securities were as follows:

December 31, 2006

Gross Unrealized

SASCostGains Losses FV

Equity Sec. $289,000 $35,000 $(36,000) $288,000

December 31, 2007

Gross Unrealized

SASCost Gains Losses FV

Equity Sec $261,000 $10,000 $(58,000) $213,000


Problem 17-11 2006 and 2007 are presented,


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

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Available for Sale securities at cost……………………………….. $37,500

FV adjustment (SAS)……………………… (7,500)

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NET at FMV $30,000

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  • INSTRUCTIONS:

  • Prepare journal entries for each of the

  • transactions discussed below.


During 2006 the following transactions took place: available-for-sale investment portfolio at

1. On March 1, Josie Company paid a $2 per share dividend.

900 sh x $2 = $1800

Cash…………. $1,800

Dividend Revenue………….$1,800

  • 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


50 x $16 = $800

SAS………..$ 800

Cash………..$800

  • At December 31, 2006, the stocks had the following price per share

  • values: Earl $17, Josie $19, and David $8.

MA-SAS………$8,450

UHG-EQ……..$8,450

Earl $15,000 + $800 = $15,800 cost vs $17,850 fmv = +2,050

Josie $18,000 vs $17,100 fmv = (900)

David $1,800 (left) vs $1600 fmv = (200)

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$35,600 $36,550 $+950

vs

PREVIOUS -7,500

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ADJUSTMENT +$8,450


During 2007 the following transactions took place: of

5. On February 1, Big Brother Holdings sold the remaining David shares for $7 a share.

200 shares left x 7fmv = $1400

vs

200 shares left x 9 (cost) = $1800

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$400 LOSS

Cash……..$1400

LOSS……. 400

SAS………$1800

6. On March 1, Josie Company paid a $2 per share dividend.

900 shares x $2 = $1800

Cash……..$1800

Dividend Revenue………$1800


1,050 shares x $3 = $3,150

Dividend Receivable……$3,150

Dividend Revenue………$3,150

  • At December 31, 2007, the stocks had the following price per share values:

  • Earl $19, Josie $21.

Earl $15,800 cost vs $19,950 fmv = +4,150

Josie $18,000 cost vs $18,900 fmv = + 900

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$33,800 $38,850 $5,050

vs

Previous adjustment +950

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ADJUSTMENT $4100

MA-SAS..$4100

UHG-EQ…$4100


2006

2007

Dividend Receivable…. $3,150

SAS……………………. $35,600

+

MA……………………….. 950

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at FMV $36,550

SAS…………. $33,800

+

MA………….. 5,050

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at FMV…… $38,850

Accumulated OCI……… $950

Accumulated OCI….. $5,050


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