Chapter 13: Q3P (page 658)
(Debt and Equity Investments) Cardinal Paz Corp. carries an account in its general ledger called Investments,which contained debits for investment purchases, and no credits, with the following descriptions.
Feb. 1, 2017 Sharapova Company common stock, \(100 par, 200 shares \) 37,400
April 1 U.S. government bonds, 11%, due April 1, 2027, interest payable
April 1 and October 1, 110 bonds of \(1,000 par each 110,000
July 1 McGrath Company 12% bonds, par \)50,000, dated March 1, 2017,
purchased at 104 plus accrued interest, interest payable
annually on March 1, due March 1, 2037, 54,000
(Round all computations to the nearest dollar.)
(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that the debt securities are classified
as available-for-sale.
(b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2017, using the
straight-line method.
(c) The fair values of the investments on December 31, 2017, were:
Sharapova Company common stock \( 31,800
U.S. government bonds 124,700
McGrath Company bonds 58,600
What entry or entries, if any, would you recommend be made?
(d) The U.S. government bonds were sold on July 1, 2018, for \)119,200 plus accrued interest. Give the proper entry.
Short Answer
Debt investment debited by $162,000, equity investment debited by $37,400, interest revenue debited by $2,000 and investment credited by $201,4000. Gain on the sale of debt investment is $9,200.
Step by step solution
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