Chapter 10: Q13RQ. (page 567)
How are held-to-maturity debt investments reported on the financial statements?
Held to maturity debt investments arereported on the asset side on the basis of their maturity period.
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Accounting for equity investments
Suppose that on January 6, 2018, East Coast Motors paid \(280,000,000 for its 35% investment in Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume Boxcar earned a net income of \)90,000,000 and paid cash dividends of $45,000,000 to all outstanding stockholders during 2018. (Assume all outstanding stock is voting stock.)
Requirements
Post all 2018 transactions to the investment T-account. What is its balance after all the transactions are posted? How would this balance be classified on the balance sheet dated December 31, 2018?
Question: S10-4 Accounting for equity investments
On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for \(16 per share. On August 1, 2018, Farrier paid a \)0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.
Requirements
Journalize the transactions related to Bryant’s investment in the Farrier stock during 2018.
Question: P10-22B Classifying and accounting for debt and equity investments
Captain Transfer Corporation generated excess cash and invested in securities as follows:
2018
Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.
Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.
Sep. 16 Sold the Naradon stock for \(13.70 per share.
Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.
Dec. 31 Received a \(600 interest payment from Purple.
31 Adjusted the Purple bond to its market value of \)44,000.
Requirements
3. Prepare T-accounts for the investment assets, and show how to report the investments on Captain Transfer’s balance sheet at December 31, 2018.
Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
Requirements
1. Journalize any required 2018 entries for the bond investment.
Classifying and accounting for equity investments
Boston Today Publishers completed the following investment transactions during 2018 and 2019:
2018
Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.
23. Received a cash dividend of \)1.50 per share on the Loveable stock.
31. Adjusted the investment to its market value of \(11.00 per share.
2019
Jan. 27 Sold the Loveable stock for \)18.20 per share.
Requirements
On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?
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