Question: E10-11 Accounting for debt investments
Peyton Investments completed the following investment transactions during 2018:
Jan. 5 Purchased Vedder Company’s $400,000 bond at face value. Peyton classified the investment as available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and December 31 and matures on December 31, 2021. Management’s intent is to keep the bonds for several years.
Jun. 30 Received an interest payment from Vedder.
Dec. 31 Received an interest payment from Vedder.
31 Adjusted the investment to its current market value of $396,000
2. Prepare a partial balance sheet for Peyton’s Vedder investment as of December 31, 2018.
Available for sale – Debt investment
Other comprehensive income
The financial statement of the business entity that is used to report all the assets and liabilities of each type is known as a balance sheet. It classifies all of the obligations and resources as long-term and short-term.
Question: P10-22B Classifying and accounting for debt and equity investments
Captain Transfer Corporation generated excess cash and invested in securities as follows:
Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at $13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.
Aug. 21 Received a cash dividend of $0.40 per share on the Nardon stock investment.
Sep. 16 Sold the Naradon stock for $13.70 per share.
Oct. 1 Purchased a Purple bond for $40,000 at face value. Captain Transfer classifies the investment as trading and short-term.
Dec. 31 Received a $600 interest payment from Purple.
31 Adjusted the Purple bond to its market value of $44,000.
3. Prepare T-accounts for the investment assets, and show how to report the investments on Captain Transfer’s balance sheet at December 31, 2018.
Question: P10-25 Accounting for debt and equity investments
This problem continues the Canyon Canoe Company situation from Chapter 9. Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019.
Jul. 1 Purchased 8,000 shares in Adobe Outdoor Adventure Company for $3 per share. Canyon Canoe does not have significant influence over Adobe.
7 Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for $5 per share. Canyon Canoe does have significant influence over Bison.
10 Purchased a bond from Camelot Canoes with a face value of $80,000. Canyon Canoe intends to hold the bond to maturity. The bond pays interest semiannually on June 30 and December 31.
Sep. 30 Received dividends of $0.15 per share from Adobe.
Nov. 1 Received dividends of $0.30 per share from Bison.
Dec. 31 Received an interest payment of $3,200 from Camelot Canoes.
31 Bison Backpacks reported net income of $30,000 for the year.
31 Adjusted the Adobe stock for a market value of $2.98 per share.
Determine the effect on Canyon Canoe Company’s net income for the year for each of the three investments.
Question: S10-6 Accounting for debt investments
On June 1, 2018, Josh’s Restaurant decides to invest excess cash of $54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of $51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.
What was the net effect of the investment on Josh’s net income for the year ended December 31, 2018?
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.
1. How would the bond investment be classified on League Up’s December 31, 2018, balance sheet?
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