1.On 5/2/17, Anna Company purchased $100,000 of the 9%, 10-year bonds of Dexter Corporation for $106,247, which provides an 8% return on annual interest payments made every 5/1. Anna does not intend to hold the bonds until maturity, but will hold them for longer than a year. The market value of the bonds at 12/31/17 is $106,100 and at 12/31/18 is $106,000. On 3/1/19, Anna sells the bonds for $105,950. What journal entries will Anna make in 2017 and 2018 to appropriately record these transactions and to report this investment on the year-end financial statements and on 3/1/19 to record the sale of the investment?
2. Gilder Company has the following securities in its portfolio of trading equity securities on 12/31/17:
Cost Fair Value
5,000 shares of Diamond Corp. $146,000 $126,500
10,000 shares of Culver Co. 180,000 185,000
2,000 shares of Barbee Co. 52,000 52,600
$378,000 $364,100
All of the securities had been purchased in 2017.
In 2018, Gilder completed the following securities transactions:
3/1 Sold 5,000 shares of Diamond Corp. @ $26 less fees of $1,500.
7/1 Bought 600 shares of Vogle Stores @ $42 plus fees of $550.
The Gilder Company portfolio of trading equity securities appeared at the end of 2018:
Cost Fair Value
10,000 shares of Culver Co. $180,000 $198,500
2,000 shares of Barbee Co. 52,000 53,000
600 shares of Vogle Stores 25,750 23,800
$257,750 $275,300
Required: Prepare the general journal entries for Gilder Company for:
the 2017 adjusting entry.
the sale of the Diamond Corp. stock and the purchase of the Vogle Stores stock
the 12/31/18 adjusting entry.
3.On 2/1/17, Wall Corporation purchased 30,000 shares of ABC Company for $15 each. This investment represented 25% of the outstanding common stock of ABC, and Wall intends to hold the investment for at least a year. On 10/1/17, Wall received dividends of $1.20 per share. ABC’s net income for 2017 was $400,000, and the market value of ABC stock at 12/31/17 was $16 per share. Make all journal entries required by Wall in 2017.
4.XYZ has invested $1,000,000 in a debt security, which it has classified as available-for-sale. The security pays a fixed rate of 7%. XYZ decides that a variable rate would be more advantageous while it holds this security, so it enters into an interest swap agreement with LMN Company. The swap agreement specifies that XYZ will pay a fixed interest of 7% and receive variable interest, with settlement dates that match the interest payments on the security. Assume that interest rates declined in 2017, and that XYZ had to pay $11,000 as an adjustment to the settlement at 12/31/17. Because of the change in interest rates, the value of the security increased by $42,000 in 2017, but the value of the swap contract decreased by $42,000.
Prepare the journal entries required to record (a) the receipt of interest revenue on 12/31/17, (b) the payment of the swap settlement on 12/31/17, (c) the change in the fair value of the swap contract on 12/31/17, and (d) the change in the fair value of the available-for-sale debt security at 12/31/17.
| Date | Accounts Title | Dr | Cr |
| 5/2/2017 | Investment in Available for sale secuirities | $106,247 | |
| Cash | $106,247 | ||
| 12/31/2017 | Unrealized Loss on AFS-OCI | $147 | |
| Investment in Available for sale secuirities | $147 | ||
| (106247-106100) | |||
| 5/1/2018 | Cash | $8,000 | |
| Interest Revenue | $8,000 | ||
| 12/31/2018 | Unrealized Loss on AFS-OCI | $100 | |
| Investment in Available for sale secuirities | $100 | ||
| 3/1/2019 | Cash | 105950 | |
| Loss on sale of securities | $297 | ||
| Investment in Available for sale secuirities | 106000 | ||
| Unrealized Loss on AFS-OCI | $247 | ||
| (If any doubt please comment. I did the question 1) | |||
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