Question

1.On 5/2/17, Anna Company purchased $100,000 of the 9%, 10-year bonds of Dexter Corporation for $106,247,...

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.

Homework Answers

Answer #1
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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