Chapter 10: Q14RQ. (page 567)
What does the rate of return on total assets measure, and how is it calculated?
The rate of return on total assets calculates theability of the company to generate income using its assets. It is calculated using the average total assets, net income, and interest expenses.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question: E10-9 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
3. How much interest revenue will Advance report during 2018 on this bond investment?
Accounting for equity investments
Captain Investments completed the following investment transactions during 2018:
Jan. 14 Purchased 200 shares of Velcon stock, paying \(53 per share. The investment represents 4% ownership in Velcon’s voting stock. Captain does not have significant influence over Velcon. Captain intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of \)0.28 per share on the Velcon stock.
Dec. 31 Adjusted the Velcon investment to its current market value of $58.
Requirements
Journalize the entries for 2018. Explanations are not required.
Accounting for equity investments
Strategic Investments completed the following investment transactions during 2018:
Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon’s voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock.
Dec. 31 Adjusted the investment to its current market value of \(45 per share.
31 Phyflexon reported net income of \)330,000 for the year ended 2018.
Requirements
1. Journalize Strategic’s investment transactions. Explanations are not required.
9 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
3. How much interest revenue will Advance report during 2018 on this bond investment?
Accounting for debt investments
League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.
Requirements
1. How would the bond investment be classified on League Up’s December 31, 2018, balance sheet?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
