ABE13-1 Coffey Corporation purchased debt investments for $59,953 on January 1, 2008. On July 1, 2008, Coffey received cash interest of $2,698. Journalize the purchase and the receipt of interest. Assume that no interest has been accrued.
Jan. 1...... Debt Investments52,000
Cash...... 52,000
July 1...... Cash2,340
Interest Revenue...... 2,340
Dossett Company had the following transactions pertaining to stock investments. Feb. 1 Purchased 505 shares of Goetz common stock (2%) for $5,050 cash, plus brokerage fees of $257. July 1 Received cash dividends of $2 per share on Goetz common stock. Sept. 1 Sold 351 shares of Goetz common stock for $5,265, less brokerage fees of $200. Dec. 1 Received cash dividends of $2 per share on Goetz common stock. Instructions Journalize the transactions. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. Round answers to 0 decimal places, e.g. 125.)
(a)Feb.1Stock Investments...... 6,200
Cash ($6,000 + $200)...... 6,200
July1Cash (600 X $1)...... 600
Dividend Revenue...... 600
Sept.1Cash ($4,400 – $100)...... 4,300
Gain on Sale of Stock Investments
($4,300 – $3,100)...... 1,200
Stock Investments...... 3,100
($6,200 X 3/6)
Dec.1Cash (300 X $1)...... 300
Dividend Revenue...... 300
Presented below are two independent situations. Heath Cosmetics acquired 15% of the 190,600 shares of common stock of Van Fashion at a total cost of $15 per share on March 18, 2008. On June 30, Van declared and paid a $56,100 dividend. On December 31, Van reported net income of $128,500 for the year. At December 31, the market price of Van Fashion was $17 per share. The stock is classified as available-for-sale. Yoder, Inc., obtained significant influence over Parks Corporation by buying 30% of Parks 34,500 outstanding shares of common stock at a total cost of $7 per share on January 1, 2008. On June 15, Parks declared and paid a cash dividend of $34,500. On December 31, Parks reported a net income of $80,100 for the year. Instructions Prepare all the necessary journal entries for 2008 for (a) Heath Cosmetics and (b) Yoder, Inc.
(a)2008
Mar.18Stock Investments...... 390,000
Cash (200,000 X 15% X $13)...... 390,000
June30Cash...... 9,000
Dividend Revenue...... 9,000
($60,000 X 15%)
Dec.31Market Adjustment—Available-for-
Sale...... 60,000
Unrealized Gain—Equity...... 60,000
($450,000 – $390,000)
(b)Jan. 1...... Stock Investments81,000
Cash (30,000 X 30% X $9)...... 81,000
June15Cash...... 9,000
Stock Investments...... 9,000
($30,000 X 30%)
Dec.31Stock Investments...... 24,000
Revenue from Investment in
Parks Corp...... 24,000
($80,000 X 30%)
Glaser Services acquired 30% of the outstanding common stock of Nickels Company on January 1, 2008, by paying $849,500 for the 43,600 shares. Nickels declared and paid $0.28 per share cash dividends on March 15, June 15, September 15, and December 15, 2008. Nickels reported net income of $323,400 for the year. At December 31, 2008, the market price of Nickels common stock was $24 per share. Prepare the journal entries for Glaser Services for 2008 assuming Glaser cannot exercise significant influence over Nickels. (Use the cost method and assume that Nickels common stock should be classified as a trading security.) Prepare the journal entries for Glaser Services for 2008, assuming Glaser can exercise significant influence over Nickels. Use the equity method. In tabular form, indicate the investment and income statement account balances at December 31, 2008, under each method of accounting. (If answer is zero, please enter 0. Do not leave any fields blank.)
(a)Jan. 1...... Stock Investments800,000
Cash...... 800,000
Mar.15Cash...... 13,500
Dividend Revenue...... 13,500
(45,000 X $.30)
June15Cash...... 13,500
Dividend Revenue...... 13,500
Sept.15Cash...... 13,500
Dividend Revenue...... 13,500
Dec.15Cash...... 13,500
Dividend Revenue...... 13,500
31Market Adjustment—Trading...... 280,000
Unrealized Gain—Income...... 280,000
[$800,000 – ($24 X 45,000)]
(b)Jan. 1...... Stock Investments800,000
Cash...... 800,000
Mar.15Cash...... 13,500
Stock Investments...... 13,500
June15Cash...... 13,500
Stock Investments...... 13,500
Sept.15Cash...... 13,500
Stock Investments...... 13,500
Dec.15Cash...... 13,500
Stock Investments...... 13,500
Dec.31 Stock Investments...... 96,000
Revenue from Investment in
Nickels Company...... 96,000
($320,000 X 30%)
(c) / Cost Method / EquityMethod
Stock Investments
Common stock
Unrealized Gain—Income
Dividend revenue
Revenue from investment in Nickels
Company
**$24 X 45,000 shares
**$800,000 + $96,000 – $54,000 / $1,080,000
280,000
54,000
0 / * / $842,000
0
96,000 / **
P13-2A In January 2008, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred. Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600. Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400. Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1. July 1 Received a cash dividend of $0.60 per share on the Hiens common stock. Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200. Sept. 1 Received a $1 per share cash dividend on the Pryce common stock. Oct. 1 Received the semiannual interest on the Roy bonds. Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees. At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share. Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.) (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. If answer is zero, please enter 0. Do not leave any fields blank.) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.) (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. If answer is zero, please enter 0. Do not leave any fields blank.) Prepare the adjusting entry at December 31, 2008, to report the investment securities at fair value. All securities are considered to be trading securities.
(a)Feb.1Stock Investments...... 32,400
Cash ($31,800 + $600)...... 32,400
Mar.1Stock Investments...... 20,400
Cash ($20,000 + $400)...... 20,400
Apr.1Debt Investments...... 51,000
Cash ($50,000 + $1,000)...... 51,000
July1Cash ($.60 X 600)...... 360
Dividend Revenue...... 360
Aug.1Cash ($11,600 – $200)...... 11,400
Stock Investments...... 10,800
[($32,400 ÷ 600) X 200]
Gain on Sale of Stock
Investments...... 600
Sept.1Cash ($1 X 800)...... 800
Dividend Revenue...... 800
Oct.1Cash ($50,000 X 7% X 1/2)...... 1,750
Interest Revenue...... 1,750
1Cash ($50,000 – $1,000)...... 49,000
Loss on Sale of Debt Investments...... 2,000
($51,000 – $49,000)
Debt Investments...... 51,000
Stock Investments / Debt InvestmentsFeb.132,400
Mar.120,400 / Aug.110,800 / Apr.151,000 / Oct.151,000
Dec. 31 Bal. 42,000 / Dec. 31 Bal.0
(b)Dec.31Unrealized Loss—Income...... 800
Market Adjustment—Trading...... 800
($42,000 – $41,200)
Security / Cost / Fair ValueHiens common
Pryce common / $21,600
20,400
$42,000 / $22,000
19,200
$41,200 / (400 X $55)
(800 X $24)