Chapter 10: Q2RQ. (page 566)
What is equity security?
Thesecurity providing ownership rights to its holder is known as equity security.
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Question: P10-20A Accounting for equity investments
The beginning balance sheet of Waterfall Source Co. included a \(400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions:
Mar. 3 Purchased 4,000 shares at \)11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence.
May 15 Received a cash dividend of \(0.61 per share on the Lili investment.
Dec. 15 Received a cash dividend of \)70,000 from Evan investment.
31 Received Evan’s annual report showing \(300,000 of net income.
31 Received Lili’s annual report showing \)120,000 of net income for the year.
31 Evan’s stock fair value at year-end was \(390,000.
31 Lili’s common stock fair value at year-end was \)12 per share.
Requirements
4. Where is the unrealized holding gain or loss associated with the Lili stock 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
In what category and at what value would Josh report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Jackrabbit’s stock be reported, if at all?
Question: S10-5 Accounting for debt investments
On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.
Requirements
2. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant’s bond be reported, if at all?
How is the purchase of a held-to-maturity debt security at face value recorded?
Briefly describe the specific types of debt and equity securities.
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