Question

Question: P10-25 Accounting for debt and equity investments

This problem continues the Canyon Canoe Company situation from Chapter 9. Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019.

Jul. 1 Purchased 8,000 shares in Adobe Outdoor Adventure Company for \(3 per share. Canyon Canoe does not have significant influence over Adobe.

7 Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for \)5 per share. Canyon Canoe does have significant influence over Bison.

10 Purchased a bond from Camelot Canoes with a face value of \(80,000. Canyon Canoe intends to hold the bond to maturity. The bond pays interest semiannually on June 30 and December 31.

Sep. 30 Received dividends of \)0.15 per share from Adobe.

Nov. 1 Received dividends of \(0.30 per share from Bison.

Dec. 31 Received an interest payment of \)3,200 from Camelot Canoes.

31 Bison Backpacks reported net income of \(30,000 for the year.

31 Adjusted the Adobe stock for a market value of \)2.98 per share.

Requirements

1. Journalize the transactions including any entries, if required, at December 31, 2019.

Short answer

Answer

Both sides of the journal totals$350,935.

Step-by-step solution

Definition of Semi-Annual Interest Rate

The interest rate that will be charged on the borrowed amount for every 6 months is known as the semi-annual interest rate.

Journal Entries for Year

Date	Accounts and Explanation	Debit $	Credit $
1 July 2019	Equity investment – Adobe outdoor	$24,000
	Cash		$24,000
7 July 2019	Equity investment - Bison	$218,750
	Cash		$218,750
10 July 2019	Held to maturity – debt investment	$80,000
	Cash		$80,000
30 Sep 2019	Cash	$1,200
	Dividend revenue		$1,200
1 Nov 2019	Cash	$13,125
	Equity investment		$13,125
31 Dec 2019	Cash	$3,200
	Interest revenue		$3,200
31 Dec 2019	Equity investment – Bison	$10,500
	Revenue from investment		$10,500
31 Dec 2019	Unrealized holding loss	160
	Fair value adjustment		160
		$350,935	$350,935