Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter D, Problem D.12EX
(a)
To determine
Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The stock investment transactions in the books of Company S
(b)
To determine
To discuss: The reporting of available-for-sale investments on the financial statements
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Fair value journal entries, trading investmentsThe investments of Charger Inc. include a single investment: 14,500shares of Raiders Inc. common stock purchased on February 24, Year 1,for $38 per share including brokerage commission. These shares werelassified as trading securities. As of the December 31, Year 1, balancesheet date, the share price had increased to $42 per share.
a. Journalize the entries to acquire the investment on February 24 andrecord the adjustment to fair value on December 31, Year 1.b. How is the unrealized gain or loss for trading investments reported onthe financial statements?
Fair Value Journal Entries, Available-for-Sale Investments
The investments of Steelers Inc. include a single investment: 8,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $10 per share.
CashCash DividendsInterest ReceivableInvestments-Bengals Inc. StockRetained EarningsUnrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investme
a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1.
Year 1 Sept. 12 fill in the blank fb2219094fa204f_2fill in the blank fb2219094fa204f_4Year 1 Dec. 31 fill in the blank fb2219094fa204f_6fill in the blank fb2219094fa204f_8b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial…
Fair Value Journal Entries, Available-for-Sale Investments
The investments of Steelers Inc. include a single investment: $400,000 of Bengals Inc. 5% bonds purchased at 100 on January 1, 20Y7. These bonds were classified as available-for-sale securities. As of the December 31, 20Y7, balance sheet date, the fair value of the bonds declined to $392,800.
a. Journalize the entries to acquire the investment on January 1, 20Y7, and record the adjustment to fair value on December 31, 20Y7. If an amount box does not require an entry, leave it blank.
20Y7 Jan. 1
Investments-Bengals Inc. Bonds
fill in the blank 4f6f0ef46fe1011_2
fill in the blank 4f6f0ef46fe1011_3
Cash
fill in the blank 4f6f0ef46fe1011_5
fill in the blank 4f6f0ef46fe1011_6
20Y7 Dec. 31
fill in the blank 4f6f0ef46fe1011_8
fill in the blank 4f6f0ef46fe1011_9
fill in the blank 4f6f0ef46fe1011_11
fill in the blank 4f6f0ef46fe1011_12
b. How is the unrealized gain or loss for available-for-sale…
Chapter D Solutions
Corporate Financial Accounting
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, 2016, for 13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, 2016, balance sheet date, the share price declined to 11 per share. a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, 2016. b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?arrow_forwardFair Value Journal Entries, Available-for-Sale Investments The investments of Steelers Inc. include a single investment: $400,000 of Bengals Inc. 5% bonds purchased at 100 on January 1, 20Y7. These bonds were classified as available-for-sale securities. As of the December 31, 20Y7, balance sheet date, the fair value of the bonds declined to $392,800. a. Journalize the entries to acquire the investment on January 1, 20Y7, and record the adjustment to fair value on December 31, 20Y7. If an amount box does not require an entry, leave it blank. 20Y7 Jan. 1 Investments-Bengals Inc. Bonds fill in the blank 9997eefc101405a_2 fill in the blank 9997eefc101405a_3 Cash fill in the blank 9997eefc101405a_5 fill in the blank 9997eefc101405a_6 20Y7 Dec. 31 Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank 9997eefc101405a_8 fill in the blank 9997eefc101405a_9 Valuation Allowance for Available-for-Sale Investments fill in the blank 9997eefc101405a_11arrow_forwardJournalize the followingarrow_forward
- Recording Entries for Equity Investment: FV-NI Adjust FVA at Year-End 5M Corporation completed the following transactions, in the order given, relative to the portfolio of stocks held as equity investments measured at FV-NI. Year 2020 1. Purchased 390 shares of Starbux Corporation common stock (par value $1) at $50 per share plus a brokerage commission of 4% and transfer costs of $130 on August 1, 2020. 2. Purchased 780 shares of Kolgate Corporation Class A common stock (par value $0.50) at $35 per share plus transfer costs of $195 on September 15, 2020. Year 2021 1. Purchased 715 shares of Starbux Corporation common stock at $55 per share plus a brokerage commission of 4% and transfer costs of $156 on February 1, 2021. 2. Received declared cash dividends of $2.00 per share on the Kolgate Corporation Class A common stock on June 30, 2021. 3. Sold 195 shares of Starbux Corporation common stock at $58 per share on August 15, 2021. Year-End Stock Prices 2020 2021 Starbux,…arrow_forwardJournal entries for trading investments The investments of Charger Inc. include an investment of trading securities of Raiders Inc. purchased on February 24, 20Y7, for $216,000. The fair value of the securities on December 31, 20Y7, is $288,000. a. Journalize the entries for the February 24 purchase and the adjustment to fair value on December 31, 20Y7. If an amount box does not require an entry, leave it blank. 20Y7 Feb. 24 Accounting numeric field 20Y7 Dec. 31 Feedback Check My Work a. Increase the investment and reduce Cash for number of shares times the per share price. The unrealized gain (credit) or unrealized loss (debit) is the difference between the acquired per share price and the market price per share at 20Y7 taken times the number of shares acquired. The offset account for the gain or loss entry is the valuation allowance account. b. How is a unrealized gain or loss for trading investments reported on the financial statements? 00arrow_forwardJournal entries for trading investments The investments of Charger Inc. include an investment of trading securities of Raiders Inc. purchased on February 24, 20Y7, for $551,000. The fair value of the securities on December 31, 20Y7, is $609,000. a. Journalize the entries for the February 24 purchase and the adjustment to fair value on December 31, 20Y7. If an amount box does not require an entry, leave it blank. 20Y7 Feb. 24 fill in the blank 3edf1609201706b_2 fill in the blank 3edf1609201706b_3 fill in the blank 3edf1609201706b_5 fill in the blank 3edf1609201706b_6 20Y7 Dec. 31 fill in the blank 3edf1609201706b_8 fill in the blank 3edf1609201706b_9 fill in the blank 3edf1609201706b_11 fill in the blank 3edf1609201706b_12 b. How is a unrealized gain or loss for trading investments reported on the financial statements? The unrealized gain or unrealized loss on trading investments is reported on the (or a separate item if significant).…arrow_forward
- Journal entries for trading investments The investments of Charger Inc. include an investment of trading securities of Raiders Inc. purchased on February 24, 20Y7, for $551,000. The fair value of the securities on December 31, 20Y7, is $609,000. a. Journalize the entries for the February 24 purchase and the adjustment to fair value on December 31, 20Y7. If an amount box does not require an entry, leave it blank. 20Y7 Feb. 24 fill in the blank fill in the blank fill in the blank fill in the blank 20Y7 Dec. 31 fill in the blank fill in the blank fill in the blank fill in the blank b. How is a unrealized gain or loss for trading investments reported on the financial statements? The unrealized gain or unrealized loss on trading investments is reported on the_____________(or a separate item if significant). Unrealized losses would be_____________in determining net income, while unrealized gains would be_____________in determining net income..…arrow_forwardEquity Investments Fair Value Method The following information is available for the Rosen Company as of December 31, year 1 regarding its investments. 4,200 shares of Grimes Company common stock 3,750 shares of Oliver Company common stock Total of portfolio Previous fair value adjustment balance Cost $43,900 23,750 $67,650 Requirements 1. Make an adjusting entry needed for December 31, year 1. Fair Value $44,275 21,995 66,270 1,650 2. During year 2, Rosen sold its investment in Oliver Company for $22,500. Make a journal entry to record the sale. 3. At the end of year 2, the Grimes Company shares had a fair value of $45,250. Make the adjusting entry needed for December 31, year 2.arrow_forwardFair Value Journal Entries, Trading Investments Gruden Bancorp Inc. purchased a portfolio of trading securities during Year 1. The cost and fair value of this portfolio on December 31, Year 1, was as follows: Name Number of Shares Total Cost Total Fair Value Griffin Inc. 1,100 $14,740 $13,860 Luck Company 850 27,880 25,930 Wilson Company 250 7,250 7,400 Total $49,870 $47,190 On May 10, Year 2, Gruden Bancorp Inc. purchased 500 shares of Carroll Inc., at $29 per share plus a $80 brokerage commission. Provide the journal entries to record the following: a. The adjustment of the trading security portfolio to fair value on December 31, Year 1. Year 1, Dec. 31 b. The May 10, Year 2, purchase of Carroll Inc. stock. Year 2, May 10arrow_forward
- Fair Value Journal Entries, Trading Investments Gruden Bancorp Inc. purchased a portfolio of trading securities during Year 1. The cost and fair value of this portfolio on December 31, Year 1, was as follows: Name Number of Shares Total Cost Total Fair Value Griffin Inc. 1,400 $18,760 $17,630 Luck Company 750 24,600 22,880 Wilson Company 350 10,500 10,710 Total $53,860 $51,220 On May 10, Year 2, Gruden Bancorp Inc. purchased 500 shares of Carroll Inc., at $30 per share plus a $90 brokerage commission. Provide the journal entries to record the following: a. The adjustment of the trading security portfolio to fair value on December 31, Year 1. Year 1, Dec. 31 fill in the blank fc5d10fdb048f9d_2 fill in the blank fc5d10fdb048f9d_4 b. The May 10, Year 2, purchase of Carroll Inc. stock. Year 2, May 10 fill in the blank 1c85c7f3ff9905c_2arrow_forwardAssessing Financial Statement Effects of Equity Method SecuritiesUse the financial statement effects template to record the following transactions involving investments in marketable securities accounted for using the equity method.a. Purchased 12,000 common shares of Bakersfield Co. at $10 per share; the shares represent 30% ownership in Bakersfield.b. Received a cash dividend of $1.50 per common share from Bakersfield.c. Bakersfield reported annual net income of $75,000.d. Sold all 12,000 common shares of Bakersfield for $128,500.Use negative signs with answers, if appropriate. Balance Sheet Income Statement Noncash Contrib. Earned Transaction Cash Asset + Assets = Liabilities + Captial + Capital Revenues - Expenses = Net income a. Purchased shares of Bakersfield. Answer Answer Answer Answer Answer Answer Answer Answer b. Received cash dividend from Bakersfield. Answer Answer Answer Answer Answer Answer Answer Answer c.…arrow_forwardAssessing Financial Statement Effects of Trading and Available-for-Sale Securities Use the financial statement effects template to record the following four transactions involving investments in marketable securities. Purchased 6,000 common shares of Liu, Inc., at $12.25 cash per share. Received a cash dividend of $1.50 per common share from Liu. Year-end market price of Liu common stock is $11.25 per share. Sold all 6,000 common shares of Liu for $66,300. Use negative signs with answers, when appropriate. Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contributed Capital + Earned Capital (1) Answer Answer Answer Answer Answer (2) Answer Answer Answer Answer Answer (3) Answer Answer Answer Answer Answer (4) Answer Answer Answer Answer Answer Income Statement Revenue - Expenses = Net Income Answer Answer Answer Answer Answer Answerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning