Chapter 10: Q5RQ. (page 566)
How is the purchase of a held-to-maturity debt security at face value recorded?
Journal entry will includedebit or held to maturity debt investment andcredit to cash. It will be done at the face value of the investment.
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Accounting for debt investments
Griffin purchased a bond on January 1, 2018, for
Requirements
1. Journalize the 2018 transactions related to Griffin’s bond investment. Explanations are not required.
What is equity security?
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?
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
2. Classify and prepare a partial balance sheet for Strategic’s Phyflexon investment as of December 31, 2018.
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.
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