Chapter 10: Q6RQ. (page 566)
When disposing of an available-for-sale debt investment, where is the gain or loss on disposal reported in the financial statements?
Gain or loss on disposal is reported on the income statement.
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Accounting for debt investments
Griffin purchased a bond on January 1, 2018, for \(140,000. The bond has a face value of \)140,000 and matures in 20 years. The bond pays interest on June 30 and December 31 at a 3% annual rate. Griffin plans on holding the investment until maturity.
Requirements
1. Journalize the 2018 transactions related to Griffin’s bond investment. Explanations are not required.
Classifying and accounting for debt and equity investments
Jetway Corporation generated excess cash and invested in securities as follows: 2018
Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.
Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.
Sep. 16 Sold the Pogo stock for \(13.40 per share.
Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.
Dec. 31 Received a \(100 interest payment from Violet.
31 Adjusted the Violet bond to its market value of \)22,000.
Requirements
Prepare T-accounts for the investment assets, and show how to report the investments on Jetway’s balance sheet at December 31, 2018.
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?
As a result of the recent mortgage crisis, many banks reported record losses to their mortgage receivables and other assets based on the decline in these assets’ fair values.
Requirements
If a business chooses not to report these losses, is there an ethical issue involved? Who is hurt?
Question: P10-23B Accounting for equity investments
The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).
During the year, Text Source completed the following investment transactions:
Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.
May 15 Received a cash dividend of \(0.69 per share on the Josh investment.
Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.
31 Received Taylor’s annual report showing \(100,000 of net income.
31 Received Josh’s annual report showing \)620,000 of net income for the year.
31 Taylor’s stock fair value at year-end was \(620,000.
31 Josh’s common stock fair value at year-end was \)14 per share.
Requirements
Where is the unrealized holding gain or loss associated with the Josh stock reported?
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