Chapter 10: Q.9RQ (page 566)
What adjustment must be made at the end of the period for trading debt investments and available-for-sale debt investments?
Answer
Adjustments for fair value are made at the year-end.
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
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
2. Journalize all required 2018 transactions related to East Cost Motors’s Boxcar investment. Include an explanation for each entry.
Computing rate of return on total assets
Montane Exploration Company reported these figures for 2018 and 2017:
Income statement: Partial | 2018 | 2017 |
Interest expenses | \(16,700,000 | \)16,500,000 |
Net income | 16,900,000 | 20,200,000 |
Balance sheet: Partial | Dec 31, 2018 | Dec 31, 2017 |
Total assets | \(316,000,000 | \)420,000,000 |
Compute the rate of return on total assets for 2018. (Round to two decimals.)
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?
Why would a company invest in debt or equity securities?
Accounting for debt investments
Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity.
Requirements
1. Journalize Solomon Brothers’ transactions related to the bonds for 2018.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
