Homework for Credit - Chapter 15 - This assignment is related to

Chapter 15, pages 751 - 755, Exercises # 2, 6, 10. 16. 18.

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Faith’s notes / answers are highlighted

Pg 751 EX 15-2 Entries for equity investments: less than 20% ownership

The following equity investment transactions were completed by Vintage Company

during a recent year:
Apr. 10. Purchased 11,000 shares of Delew Company’s common stock for a price of
$60 per share plus a brokerage commission of $220. Delew Company has 250,000
shares of common stock outstanding.July 8. Received a quarterly dividend of $0.85
per share on the Delew Company investment. Sept. 10. Sold 3,000 shares for a
price of $54 per share less a brokerage commission of $90. Dec. 31. At the end of
the accounting period, the fair value of the remaining 8,000 shares of Delew
Company’s stock was $59.90 per share.
Journalize the entries:
Faith’s Answers:
4/1 – 11k of shares @ $60 per share + $220 broker fee

DATE ACCOUNT DEBIT CREDIT

Apr. 10 Investment Delew $660,220
Company’s
Cash $660,220
7/8 – Quarterly Divident on Delew Company’s investment - 11k of shares @
$0.85 per share

DATE ACCOUNT DEBIT CREDIT

July 8 Cash $9350
Divident Revenue $9350
9/10 – Sold some of Delew Company’s Shares - 3k of shares @ $54 per
share - $90 broker fee

DATE ACCOUNT DEBIT CREDIT

Sept. 10 Cash $162,910
Investment Delew $162,910
Company’s
Dec. 31. Fair value of the remaining 8,000 shares of Delew Company’s
stock was $59.90 per share, NO JOURNAL ENTRY NEEDED

EX 15-6 Entries for equity investments: 20%–50% ownership

On January 4, 20Y4, Ferguson Company purchased 480,000 shares of Silva
Company’s
common stock directly from one of the founders for a price of $30 per share.
Silva has 1,200,000 shares outstanding, including the Daniels shares. On July 2,
20Y4, Silva paid $750,000 in total dividends to its shareholders. On December 31,
20Y4, Silva reported a
net income of $2,000,000 for the year.

a. Journalize the Ferguson Company entries for the transactions

involving its investment in Silva Company during 20Y4.
Faith’s Answer:

 Jan 4: Ferguson Co Made investment into Sillva Co. stock purchased 480k
shares @ $30 each share. (480,000 shares × $30/share)
 Jul 2: Silva’s company paid out total dividentts to shareholdears
 Dec 31: Silva’s co net income for year is $2,000,000, we adjust for
Ferguson company’s owner portion of this income

Date Account Name Debit Credit

Jan 4, 20Y4 Investment in Silva Stock 14,400,000
Cash 14,400,000
Cash for Dividends
Jul 2, 20Y4 Received 750,000
Investment in Silva Co
Stock 750,000
Investment in Silva Co
Dec 31, 20Y4 Stock 400,000
Equity in the Earnings of
Silva Co 400,000
b. Determine the December 31, 20Y4, balance of the investment in
Silva Company stock account.
On 12/31 20Y4 the remaining balance in the Sillva Co Stock account is
$15,550,000 (Initial investment + dividends received + share of
income = $15,550,000)

EX 15-10 Entries for bond (held-to-maturity) investments

Bula Investments acquired $240,000 of Effenstein Corp., 8% bonds at their face
amount on
October 1, 20Y1. The bonds pay interest on October 1 and April 1. On April 1,
20Y2, Bula
sold $90,000 of Effenstein Corp. bonds at 102.

Journalize the entries to record the following selected transactions:

Faith’s Answers:

a. The initial acquisition of the Effenstein Corp. bonds on October 1, 20Y1.

Bula acquired Effenstein co. bonds @ face value of $240k, with 8% annual
interest rate
 Debit: Bond Investments ($240,000)
 Credit: Cash ($240,000)
b. The adjusting entry for 3 months of accrued interest earned on the
Effenstein Corp. bonds on December 31, 20Y1.
The Effenstein bonds pay interest for Oct, Nov, and Dec., @ annual interest
rate 8% = face amount x annual interest rate x time and months/12
 Debit: Interest Receivable ($4,000) [($240,000 × 8% × 3/12)]
 Credit: Interest Revenue ($4,000)
c. The receipt of semiannual interest on April 1, 20Y2.
The Effenstein bonds pays its annual 8% interest semi-annually
 Debit: Cash ($9,600) [($240,000 × 8% × 6/12)] = interest received
 Credit: Interest Receivable ($4,000) the adjustment on prior accurred
interest
 Credit: Interest Revenue ($5,600) for the additional interest income
d. The sale of $90,000 of Effenstein Corp. bonds on April 1, 20Y2, at 102.
as step c shows The Effenstein bonds semi-annuall interest payment on April 1,
20Y2 is 9600, the face value on bond sold is 90k, sale price is 102% of face
value (90k * 1.02) so $ $91,800 = sale price
 Debit: Cash ($91,800)
o $90,000 × 1.02% =1800
 Debit: Bond Investments ($88,200)
o [($90,000 × 100%)]
 Credit: on the Gain of the Sold Bonds ($3,600)
o [($91,800 - $88,200)]
e. The receipt of the face value of the remaining bonds at their maturity
on October 1, 20Y8. .
The face value on eacg bond is $240k with the maturity date of October 1,
20Y8 (face value * number of bonds)
 Debit: Cash ($240,000) for receipt of face value
 Credit: Bond Investments ($240,000)
Journal:

Date Account Debit Credit

20Y1-10-01 Bond Investments 240,000
Cash 240,000
20Y1-12-31 Interest 4,000
Receivable
Interest Revenue 4,000
20Y2-04-01 Cash 9,600
Interest 4,000
Receivables
Interest Revenue 5,600
20Y2-04-01 Cash 91,800
Bond Investment 88,200
Gain on Bond sold 3,600
20Y8-10-01 Cash 240,000
Bond Investments 240,000

EX 15-16 Journal entries for trading investments

Gruden Bancorp Inc. purchased a portfolio of trading securities during 20Y3, its
first year of
operations. The cost and fair value of this portfolio on December 31, 20Y3, are as
follows:

Issuing Cost Fair Value

Company
Griffin Inc. $ 40,000 $ 44,800
Luck Company 37,500 33,750
Wilson Company 40,000 37,000

Total $117,500 $115,550

On May 10, 20Y4, Gruden Bancorp Inc. purchased trading securities of Carroll Inc.
for $34,900.
Journalize the entries for these transactions.

a The adjusting entry for the portfolio of trading securities on December

31, 20Y3.
b. The May 10, 20Y4, purchase of Carroll Inc. securities.
c. The adjusting entry for the portfolio of trading securities on
December 31, 20Y4.
Assume that except for the purchase of Carroll Inc. securities there
were no other transactions involving trading securities in 20Y4. In
addition, assume that the fair value f the portfolio of trading
securities on December 31, 20Y4, is $175,000.

The calculation I used to get the ENTIRE portfolio’s Total Unrealized

G/L is Total Fair Value of $115,550 – Total Cost of $117,500 = -
$2,950(loss)
The adjusting entry is:

Date Account Debit ($) Credit ($)

December 31, 20Y3 Griffin Inc. Trading Securiteis 4,800
Luk Co. Trading Securities 3,750
Wilson Co. Trading Securities 3,000
Trading Securities Unrealized G/L 2,950

The portfolio’s fair value on December 31, 20Y3, is $115,550.the

adjusting entry reflects the portfolio’s fair market value

d. What amount should be reported for trading investments on the

December 31, 20Y4, balance sheet?
Faith’s Answer:
Gruden Bancorp’s trade investment @ fair market value $175l999 reflect the
adjusted value after unrealozeed gain
Date Account Debit Credit
20Y3-12-31 Trading securities $115,550
Unrealized gain $2050
20Y4-05-10 Trading securities $34,900
Cash $34,900
20Y4-12-31 trading securities $175000
Unrealized gain $9450

EX 15-18 Dividend yield

At the market close of a recent year, McDonald’s Corporation had a closing

stock price
of $198.01. In addition, McDonald’s Corporation had a dividend per share of $4.19
during
the previous year.

Determine McDonald’s Corporation’s dividend yield. Round to one decimal

place
Faith’s Answer: 2.1%