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Assume the same information as E17-9 and that Steffi Graf Inc. reports net income in 2013 of $120,000 and in 2014 of $140,000. Total holding gains (including any realized holding gain or loss) total $40,000.
\r\nInstructions
\r\n(a) Prepare a statement of comprehensive income for 2013 starting with net income.
\r\n(b) Prepare a statement of comprehensive income for 2014 starting with net income.
At December 31, 2013, the available-for-sale equity portfolio for Steffi Graf, Inc. is as follows.
\r\nSecurity Cost Fair Value Unrealized Gain (Loss)
\r\nA $17,500 $15,000 ($2,500)
\r\nB 12,500 14,000 1,500
\r\nC 23,000 25,500 2,500
\r\nTotal $53,000 $54,500 1,500
\r\nPrevious fair value adjustment balance—Dr. 400
\r\nFair value adjustment—Dr. $1,100
\r\nOn January 20, 2014, Steffi Graf, Inc. sold security A for $15,100. The sale proceeds are net of brokerage fees.
\r\nInstructions
\r\n(a) Prepare the adjusting entry at December 31, 2013, to report the portfolio at fair value.
\r\n(b) Show the balance sheet presentation of the investment-related accounts at December 31, 2013.
\r\n(Ignore notes presentation.)
\r\n(c) Prepare the journal entry for the 2014 sale of security A.
Satchel Corporation purchases equity securities costing $73,000 and classifies them as available-for-sale securities. At December 31, the fair value of the portfolio is $65,000.
\r\nInstructions
\r\nPrepare the adjusting entry to report the securities properly. Indicate the statement presentation of the accounts in your entry.
On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.
\r\nDecember 31, 2013
\r\nInvestments (Trading) Cost Fair Value Unrealized Gain (Loss)
\r\nClemson Corp. stock $20,000 $19,000 $(1,000)
\r\nColorado Co. stock 10,000 9,000 (1,000)
\r\nBuffaloes Co. stock 20,000 20,600 600
\r\nTotal of portfolio $50,000 $48,600 (1,400)
\r\nPrevious fair value adjustment balance –0–
\r\nFair value adjustment—Cr. $(1,400)
\r\nDuring 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31,
\r\n2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500.
\r\nInstructions
\r\n(a) Prepare the adjusting journal entry needed on December 31, 2013.
\r\n(b) Prepare the journal entry to record the sale of the Colorado Company stock during 2014.
\r\n(c) Prepare the adjusting journal entry needed on December 31, 2014.
\r\n
The following information is available for Barkley Company at December 31, 2014, regarding its investments.
\r\nSecurities Cost Fair Value
\r\n3,000 shares of Myers Corporation Common Stock $40,000 $48,000
\r\n1,000 shares of Cole Incorporated Preferred Stock 25,000 22,000
\r\n$65,000 $70,000
\r\nInstructions
\r\n(a) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading.
\r\n(b) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as availablefor- sale.
\r\n(c) Discuss how the amounts reported in the financial statements are affected by the entries in
\r\n(a) and (b).
On January 1, 2013, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2015. The investment will provide Phantom Company a 12% yield. The bonds are classified as held-to-maturity.
\r\nInstructions
\r\n(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straightline method.
\r\n(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.
\r\n(c) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the straight-line method.
\r\n(d) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the effective-interest method.
Assume the same information as in E17-3 except that the securities are classified as available-for-sale. The fair value of the bonds at December 31 of each year-end is as follows.
\r\n2013 $320,500 2016 $310,000
\r\n2014 $309,000 2017 $300,000
\r\n2015 $308,000
\r\nInstructions
\r\n(a) Prepare the journal entry at the date of the bond purchase.
\r\n(b) Prepare the journal entries to record the interest received and recognition of fair value for 2013.
\r\n(c) Prepare the journal entry to record the recognition of fair value for 2014.
\r\n
On January 1, 2013, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
\r\nInstructions
\r\n(a) Prepare the journal entry at the date of the bond purchase.
\r\n(b) Prepare a bond amortization schedule.
\r\n(c) Prepare the journal entry to record the interest received and the amortization for 2013.
\r\n(d) Prepare the journal entry to record the interest received and the amortization for 2014.
On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.
\r\nInstructions
\r\n(a) Prepare the journal entry at the date of the bond purchase.
\r\n(b) Prepare the journal entry to record the interest received for 2013.
\r\n(c) Prepare the journal entry to record the interest received for 2014.
For the following investments identify whether they are:
\r\n1. Trading Securities
\r\n2. Available-for-Sale Securities
\r\n3. Held-to-Maturity Securities
\r\nEach case is independent of the other.
\r\n(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
\r\n(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
\r\n(c) 10-year bonds were purchased this year. The bonds mature at the first of next year.
\r\n(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
\r\n(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
\r\n(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.
Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler Corp. with a carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other-thantemporary.
\r\nPrepare the journal entry, if any, to record the reduction in value.
The following information relates to Starbucks for the year ended October 2, 2011: net income
\r\n1,245.7 million; unrealized holding loss of $10.9 million related to available-for-sale securities during the year; accumulated other comprehensive income of $57.2 million on October 3, 2010. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2011,
\r\n(b) comprehensive income for 2011, and (c) accumulated other comprehensive income at October 2, 2011.
Cleveland Company has a stock portfolio valued at $4,000 (available-for-sale). Its cost was $3,300.
\r\nIf the Fair Value Adjustment account has a debit balance of $200, prepare the journal entry at year-end.
Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment.
Use the information from BE17-5 but assume the stock was purchased as a trading security. Prepare
\r\nFairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and
\r\n(c) the fair value adjustment.
Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock as an availablefor- sale investment for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At yearend,
\r\nSherman stock was selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
Hendricks Corporation purchased trading investment bonds for $50,000 at par. At December 31,
\r\nHendricks received annual interest of $2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
Carow Corporation purchased, as a held-to-maturity investment, $60,000 of the 8%, 5-year bonds of Harrison, Inc. for $65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare
\r\nCarow’s journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used.
Use the information from BE17-1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.
Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for
\r\n(a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization.
\r\nAssume effective-interest amortization is used.
What is a variable-interest entity?
Explain the difference between the voting-interest model and the risk-and-reward model used for consolidation.
\r\n
What are hybrid securities? Give an example of a hybrid security.
Where are gains and losses related to cash flow hedges involving anticipated transactions reported?
\r\n
What is the purpose of a cash flow hedge?
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