Question: E10-9 Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
3. How much interest revenue will Advance report during 2018 on this bond investment?
The business entity will receive $33,000 as interest during 2018.
The period for which the investor holds the investment is known as the holding period. It depends upon the type of investment made.
Interest received on 30 June 2018
Add: Interest received on 31 Dec 2018
Total interest received during the year 2018
Classifying and accounting for debt and equity investments
Jetway Corporation generated excess cash and invested in securities as follows: 2018
Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at $12.00 per share. Jetway plans to sell the stock within three months when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.
Aug. 21 Received a cash dividend of $0.80 per share on the Pogo stock investment.
Sep. 16 Sold the Pogo stock for $13.40 per share.
Oct. 1 Purchased a Violet bond for $20,000 at face value. Jetway classifies the investment as trading and short-term.
Dec. 31 Received a $100 interest payment from Violet.
31 Adjusted the Violet bond to its market value of $22,000.
1. Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of the ownership of outstanding voting stock.)
Question: S10-4 Accounting for equity investments
On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for $16 per share. On August 1, 2018, Farrier paid a $0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.
3. In what category and value would Bryant report the investment on the December 31, 2018, balance sheet?
Question: P10-21B Accounting for debt investments
Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way 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. Hale and Sons intends to hold the Tyson Way bond investment until maturity.
1. Journalize Hale and Sons’s transactions related to the bonds for 2018.
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