Chapter 10: 1RQ (page 566)
What is a debt security?
Security reflecting the terms and conditions of the debt is known as debt security.
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On January 1, 2018, the College Corporation decides to invest in Small Town bonds. The bonds mature on December 31, 2022, and pay interest of 4% on June 30 and December 31. The market rate of interest was 4% on January 1, 2018, so the $20,000 maturity-value bonds sold for face value. College Corporation intends to hold the bonds until maturity. Journalize the transactions related to College Corporation’s investment in Small Town bonds during 2018.
Question: S10-7 Computing rate of return on total assets
Barot’s 2018 financial statements reported the following items—with 2017 figures given for comparison:
BAROT INC | ||
Balance Sheet | ||
As of December 31, 2018 and 2017 | ||
2018 | 2017 | |
Total assets | \(32,978 | \)30,660 |
Total liabilities | 19,400 | 11,560 |
Total stockholder’s equity | 13,578 | 19,100 |
Total liabilities and stockholder’s equity | \(32,978 | \)30,660 |
Net income for 2018 was \(3,910, and interest expense was \)240. Compute Barot’s rate of return on total assets for 2018. (Round to the nearest percent.)
Question: Where on the financial statements is an unrealized holding gain or loss on trading debt investments reported?
Question: S10-6 Accounting for debt investments
On June 1, 2018, Josh’s Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.
Requirements
What was the net effect of the investment on Josh’s net income for the year ended December 31, 2018?
Question: What method is used for investments in equity securities with more than 50% ownership? Briefly describe this method.
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