Chapter 13: 4IFRS (page 658)
Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
Held-for-maturity investments are valued as amortised costs.
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A typical provision is:
(a) bonds payable (c) a warranty liability
(2) cash (d) accounts payable
BE13-3 (L01) Takemoto Corporation borrowed \(60,000 on November 1, 2017, by signing a \)61,350, 3-month, zero-interest bearing note. Prepare Takemoto’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.
EXCEL (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its
investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,000 shares of Anderson Co. common
stock which cost \(58,500, (2) 10,000 shares of Munter Ltd. common stock which cost \)580,000, and (3) 6,000 shares of King Company
preferred stock which cost \(255,000. The Fair Value Adjustment account shows a credit of \)10,100 at the end of 2017.
In 2018, Parnevik completed the following securities transactions.
1. On January 15, sold 3,000 shares of Anderson’s common stock at \(22 per share less fees of \)2,150.
2. On April 17, purchased 1,000 shares of Castle’s common stock at \(33.50 per share plus fees of \)1,980.
On December 31, 2018, the market prices per share of these securities were Munter \(61, King \)40, and Castle $29. In addition, the
accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik
will not actively trade these securities because the top management intends to hold them for more than one year.
Instructions
(a) Prepare the entry for the security sale on January 15, 2018.
(b) Prepare the journal entry to record the security purchase on April 17, 2018.
(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2018.
(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance sheet?
Why is the liabilities section of the balance sheet of primary significance to bankers?
(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September
30, 2017, its most recent reporting date.
Investment Securities Cost Fair Value
Horton, Inc. common (5,000 shares) \(215,000 \)200,000
Monty, Inc. preferred (3,500 shares) 133,000 140,000
Oakwood Corp. common (1,000 shares) 180,000 179,000
On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock
were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot
\)132,000, and Oakwood $193,000.
Instructions
Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017
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