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Chapter 17 Team Problem

The document provides information about investments made by ABC Company in 2007 and 2008. It includes details of bonds, stocks, dividends, and market values. The summary provides journal entries to record the transactions for both years, including entries for interest, dividends, market adjustments, and gains/losses.

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Rachel Klein
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131 views3 pages

Chapter 17 Team Problem

The document provides information about investments made by ABC Company in 2007 and 2008. It includes details of bonds, stocks, dividends, and market values. The summary provides journal entries to record the transactions for both years, including entries for interest, dividends, market adjustments, and gains/losses.

Uploaded by

Rachel Klein
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 17 Team Problem – Spring 2011 (10 points)

Instructions to teams: make this page the cover sheet to your solution. Staple it to
your solution in the upper left-hand corner. Each team member present and
participating must print and sign his / her name in the space provided below.

On January 1, 2007, ABC Company purchased the following investments:


• $500,000 of Part Inc.’s 9% bonds that were purchased to yield 10%. The
bonds were dated January 1, 2007, mature on January 1, 2012, and pay
interest on June 30 and December 31. The bonds were classified by Whole
Company as Held-To-Maturity Securities. (Round PV to nearest dollar)
• 4,000 shares (no significant influence) of Jump Inc. common stock for $25
per share, which were classified as Trading Securities.
• 9,000 shares (no significant influence) of Fish Company common stock for
$18 per share, which were classified as Trading Securities.
• 100,000 shares of Swim Inc. common stock for $1,750,000. This represents
a 35% interest in Swim Inc. and gives Whole Company significant influence
over Swim Inc.

During 2007, the following information pertains to ABC Company’s investments:


• On November 15, Fish Company paid a cash dividend of $1.37 per share.
• On December 15, Jump Inc. paid a cash dividend of $0.32 per share.
• On December 31, Swim Inc. reported net income of $722,500 for the year.
• On December 31, the investments had the following market values:
o Part Inc. $518, 375
o Jump Inc. $27 per share
o Fish Company $15 per share
o Swim Inc. $23 per share

During 2008, the following information pertains to ABC Company’s investments:


• On July 1, half of the Jump Inc. shares were sold for $34.50 per share.
• On October 15, Swim Inc. paid a cash dividend of $0.46 per share.
• On December 31, Swim Inc. reported net loss of $140,000 for the year.
• On December 31, the investments had the following market values:
o Part Inc. $514, 200
o Jump Inc. $21 per share
o Fish Company $11 per share
o Swim Inc. $24 per share

Required:
Prepare all 2007 and 2008 journal entries related to these securities.

Printed name and signature of each present and participating student:


Solution
2007 Journal Entries
1/1/07 HTM Securities 480,696
Cash 480,696

1/1/07 T/S – Jump(4,000*$25) 100,000


Cash 100,000

1/1/07 T/S – Fish(9,000 * $18) 162,000


Cash 162,000

1/1/07 Investment in Swim Inc. 1,750,000


Cash 1,750,000

6/30/07 Cash 22,500


HTM Securities 1,535
Interest Revenue 24,035

11/15/07 Cash(9,000*1.37) 12,330


Dividend Revenue 12,330

12/15/07 Cash (4,000*0.32) 1,280


Dividend Revenue 1,280

12/31/07 Cash 22,500


HTM Securities 1,612
Interest Revenue 24,112

12/31/07 Investment in Swim Inc. 252,875


Revenue from Investment 252,875
($722,500*35%)

Market Adjustment Entries:

Cost Market Difference


12/31/06
Jump Inc. 100,000 108,000 8,000
Fish Company 162,000 135,000 (27,000)

12/31/07 Unreal. Hold. G/L – Income 19,000


Securities FV Adjustment – TS 19,000
2008 Journal Entries
6/30/08 Cash 22,500
HTM Securities 1,692
Interest Revenue 24,192

Sale of Jump Inc. Stock:


Cost: 50,000 (2,000*25)
Selling Price: 69,000 (2,000*34.50)
Gain on Sale 19,000

7/1/08 Cash 69,000


T/S – Jump 50,000
Gain on Sale 19,000

10/15/08 Cash (100,000*.46) 46,000


Investment in Swim Inc. 46,000

12/31/08 Cash 22,500


HTM Securities 1,777
Interest Revenue 24,277

12/31/08 Loss from Investment 49,000


Investment in Swim Inc. 49,000
($140,000*35%)

Market Adjustment Entries:


Cost Market Difference
12/31/07
Jump Inc. 50,000 42,000 (8,000)
Fish Company 162,000 99,000 (63,000)

12/31/08 Unreal. Hold. G/L – Income 52,000


Securities FV Adjustment – TS 52,000

Cash Interest Dsct. Amort. Amortized


Part Inc Date Received Revenue Amort. Total Cost
FV 500,000 1/1/2007 0 480,696
PMT 22,500 6/30/2007 22,500 24,035 1,535 1,535 482,231
N 10 12/31/2007 22,500 24,112 1,612 3,146 483,842
I 5 6/30/2008 22,500 24,192 1,692 4,838 485,534
CPT PV 480,696 12/31/2008 22,500 24,277 1,777 6,615 487,311

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