Chapter 12, Problem 12.1P

a)

To determine

Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To Journalize: The investment made by Company FM on January 1, 2016.

b)

To determine

To Journalize: The semiannual interest received by Company FM on June 30, 2016.

c)

To determine

To Journalize: The semiannual interest received by Company FM on December 31, 2016.

d)

To determine

To Calculate: The amount of investment to be recorded in the balance sheet of Company FM on December 31, 2016.

e)

To determine

To Explain: The effect of investment by Company FM on December 31, 2016, in the statement of cash flows.