Prepare the journal entry to record SouthCo's investment on February 1, 2020. b) Prepare the journal entry by SouthCo to record interest on July 31, 2020. c) Prepare the journal entry by SouthCo to record interest on January 31, 2021.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
On February 1, 2020, SouthCo purchased $100,000,000 in 5% bonds that will mature in 4 years. Management's business model is to sell the investment if market prices rise to a specific price, but will also hold and collect investment income at the present time. For bonds of similar risk and maturity, the market yield was 7%. Interest is received semiannually on July 31 and January 31. Due to changing market conditions, the fair
Answer the following questions. Please make sure your final answer(s) are accurate to the nearest whole number. For simplicity, ignore any tax effects and expected credit losses (ECL) estimated at the time of the investment's acquisition. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).
a) Prepare the journal entry to record SouthCo's investment on February 1, 2020.
b) Prepare the journal entry by SouthCo to record interest on July 31, 2020.
c) Prepare the journal entry by SouthCo to record interest on January 31, 2021.
d) Prepare the adjustment necessary to report SouthCo's investment on the January 31, 2021 balance sheet.
e) What amounts will SouthCo report for its investment on the January 31, 2021 balance sheet?
Carrying value = Accumulated other comprehensive income (AOCI) =
f) On February 1, 2021, the market price of the investment suddenly increased to 102 (due to a major upgrade in the credit rating of the company) and SouthCo sold $60,000,000 worth of the bonds for cash to recover some of the previous investment loss. Record the sales of bonds entry following the same methodology as shown in FVOCI Investment in Debt (with recycling) section in the text for Osterline.
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