Explanation Stock Investments : It refers to the investment in a financial instrument known as stock that, gives the right of ownership to an investor equal to the amount invested in the company. Thus, it enables a stockholder to claim in the profits and the assets of the company. Debt investments: The investments which are made by the investors in debts instrument is called as debt investment. Debt investments lend funds to the borrowing company with predetermined agreement for interest and maturity date. Corporate bonds, government bonds and certificate of deposits are examples of debt investment. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. 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 equities. Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses. Prepare the journal entries to record the given transactions as follows: (a) February 15 – Purchase of short-term debt investment Date Account Titles and Description Post Ref. Debit ($) Credit ($) February, 15 Short-term investment - AG(HTM) 160,000 Cash 160,000 (To record purchase of short-term debt investment (AG) in cash) Table (1) Short-term investment is an asset account, and it increases the value of assets by $160,000. Hence, debit short-term investment account with $160,000. Cash is an asset account and it decreases the value of asset by $160,000. Therefore, credit cash account for $160,000. (b) March 22 – Purchase of long-term stock investment Date Account Titles and Description Post Ref. Debit ($) Credit ($) March 22 Long-term investment –Company F (1) 35,850 Cash 35,850 (To record purchase of long-term stock investment in cash) Table (2) Long-term investment is an asset account, and it increases the value of assets by $35,850. Hence, debit long-term investment account with $35,850. Cash is an asset account and it decreases the value of asset by $35,850. Therefore, credit cash account for $35,850. Working note: Calculate the value of long-term investment Long-term investment = [ ( Number of shares × Price per share ) + Brokerage fee ] = ( 700 × $ 51 per share ) + $ 150 = $ 35 , 700 + $ 150 = $ 35 , 850 (1) (c) May 15 – Received check from American General in the payment of principle and 90 day’s interest on the debt securities. Date Account Titles and Description Post Ref. Debit ($) Credit ($) May 15 Cash (3) 164,000 Interest revenue (2) 4,000 Short-term investment – AG (HTM) 164,000 (To record principle and interest received from American general) Table (3) Cash is an asset account and it increases the value of asset by $164,000. Therefore, debit Cash account for $164,000. Interest revenue is a revenue account, and it increases the value of equity by $4,000. Hence, credit interest revenue account with $4,000. Short-term investment in Company R is an asset account, and it decreases the value of assets by $164,000. Hence, credit short-term investment account with $164,000. Working Note: Calculate the interest revenue Interest = Principle × Rate × Time =$160,000 × 10 100 × 90 360 = $ 4 , 000 (2) Calculate the total cash received Total cash received = Principle + Interest (2) =$160,000+$4,000 =$164,000 (3) (d) July 30 – Purchase of short-term investment (trading notes at the rate of 8% interest) Date Account Titles and Description Post Ref. Debit ($) Credit ($) July 30 Short-term investment – Company M (trading) 100,000 Cash 100,000 (To record purchase of short-term debt investment from company M in cash) Table (4) Short-term investment is an asset account, and it increases the value of assets by $100,000. Hence, debit short-term investment account with $100,000. Cash is an asset account and it decreases the value of asset by $100,000

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ISBN: 9781260255119

Author: Wild

Publisher: MCG CUSTOM

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FINANCIAL ACCT.FUND(LL)W/ACCESS>CUSTOM<

Ch. C - Prob. 1MCQ Ch. C - Prob. 2MCQ Ch. C - Prob. 3MCQ Ch. C - Prob. 4MCQ Ch. C - Prob. 5MCQ Ch. C - Prob. 1DQ Ch. C - Prob. 2DQ Ch. C - Prob. 3DQ Ch. C - Prob. 4DQ Ch. C - Prob. 5DQ

Ch. C - Prob. 6DQ Ch. C - Prob. 7DQ Ch. C - Prob. 8DQ Ch. C - Prob. 9DQ Ch. C - Prob. 10DQ Ch. C - Prob. 11DQ Ch. C - Prob. 12DQ Ch. C - Prob. 13DQ Ch. C - Prob. 14DQ Ch. C - Prob. 1QS Ch. C - Prob. 2QS Ch. C - Prob. 3QS Ch. C - Prob. 4QS Ch. C - Prob. 5QS Ch. C - Prob. 6QS Ch. C - Prob. 7QS Ch. C - Prob. 8QS Ch. C - Prob. 9QS Ch. C - Prob. 10QS Ch. C - Prob. 11QS Ch. C - Prob. 12QS Ch. C - Prob. 13QS Ch. C - QS C-14 Return on total assets The return on total...Ch. C - Prob. 15QS Ch. C - Prob. 16QS Ch. C - Prob. 1E Ch. C - Prob. 2E Ch. C - Prob. 3E Ch. C - Prob. 4E Ch. C - Prob. 5E Ch. C - Prob. 6E Ch. C - Prob. 7E Ch. C - Prob. 8E Ch. C - Prob. 9E Ch. C - Prob. 10E Ch. C - Prob. 11E Ch. C - Prob. 12E Ch. C - Prob. 13E Ch. C - Prob. 14E Ch. C - Prob. 15E Ch. C - Prob. 1AP Ch. C - Prob. 2AP Ch. C - Prob. 3AP Ch. C - Prob. 4AP Ch. C - Prob. 5AP Ch. C - Prob. 1BP Ch. C - Prob. 2BP Ch. C - Prob. 3BP Ch. C - Prob. 4BP Ch. C - Prob. 5BP Ch. C - Prob. 1CSP Ch. C - Prob. 1BTN Ch. C - Prob. 2BTN Ch. C - Prob. 3BTN Ch. C - Prob. 4BTN Ch. C - Prob. 5BTN Ch. C - Prob. 8BTN

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