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ACC 305 Strayer University Carla Company Debt Investments Analysis Paper

ACC 305 Strayer University Carla Company Debt Investments Analysis Paper

Question Description

Pina Company purchased, on January 1, 2017, as a held-to-maturity investment, $74,000 of the 8%, 5-year bonds of Chester Corporation for $68,389, which provides an 10% return.

Prepare Pina’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used. (Round answers to 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

(a)

(b)

Carla Company purchased, on January 1, 2017, as an available-for-sale security, $67,000 of the 11%, 5-year bonds of Chester Corporation for $62,287, which provides an 13% return.

Prepare Carla’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $63,650. (Round answers to 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

(a)

(b)

(c)

Pronghorn Company has a stock portfolio valued at $5,200. Its cost was $4,700. If the Fair Value Adjustment account has a debit balance of $290, prepare the journal entry at year-end. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

Investment Classifications

(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.

(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.

(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.

(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.

(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.

(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.

On January 1, 2017, Skysong Company acquires $280,000 of Spiderman Products, Inc., 8% bonds at a price of $253,099. Interest is received on January 1 of each year, and the bonds mature on January 1, 2020. The investment will provide Skysong Company a 12% yield. The bonds are classified as held-to-maturity.

Collapse question part

(a)

Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method. (Round answers to 0 decimal places, e.g. 2,500.)

Schedule of Interest Revenue and Bond Discount Amortization
Straight-line Method
Bond Purchased to Yield

Date

Cash
Received

Interest
Revenue

Bond Discount
Amortization

Carrying Amount
of Bonds

1/1/17

$

$

$

$

1/1/18

1/1/19

1/1/20

Presented below is selected information related to the financial instruments of Oriole Company at December 31, 2017. This is Oriole Company’s first year of operations.

Carrying
Amount

Fair Value
(at December 31)

Investment in debt securities (intent is to hold to maturity) $39,700 $40,800
Investment in Chen Company stock 839,900 957,400
Bonds payable 237,500 214,900

(a) Oriole elects to use the fair value option for these financial instruments (the fair value option for financial liabilities is discussed in Chapter 14). Assuming that Oriole’s net income is $101,400 in 2017 before reporting any securities gains or losses, determine Oriole’s net income for 2017 (assume that the difference between the carrying value and fair value is due to credit deterioration).

Oriole’s net income for 2017 $

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2017

Nash Company has the following securities in its investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 2,900 shares of Anderson Co. common stock which cost $52,200, (2) 10,600 shares of Munter Ltd. common stock which cost $614,800, and (3) 6,400 shares of King Company preferred stock which cost $262,400. The Fair Value Adjustment account shows a credit of $9,900 at the end of 2017.

In 2018, Nash completed the following securities transactions.

1. On January 15, sold 2,900 shares of Anderson’s common stock at $22 per share less fees of $2,270.
2. On April 17, purchased 900 shares of Castle’s common stock at $32 per share plus fees of $1,920.

On December 31, 2018, the market prices per share of these securities were Munter $60, King $40, and Castle $21. In addition, the accounting supervisor of Nash told you that, even though all these securities have readily determinable fair values, Nash will not actively trade these securities because the top management intends to hold them for more than one year.

Prepare the entry for the security sale on January 15, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Jan. 15, 2018

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