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27/08/2022
ill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)
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At the beginning of Year 1, Crane bought 25% of Hudson’s common stock at its book value. Total book value of all Hudson’s common stock was $850,000 on this date. |
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During Year 1, Hudson reported $54,000 of net income and paid $27,000 of dividends. |
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During Year 2, Hudson reported $31,500 of net income and paid $20,000 of dividends. |
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During Year 3, Hudson reported a net loss of $12,000 and paid $3,800 of dividends. |
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Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue. |
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Brief Exercise 17-2
Pina Company purchased, on January 1, 2017, as an available-for-sale security, $65,000 of the 8%, 5-year bonds of Chester Corporation for $60,072, which provides an 10% return.
Prepare Pina’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 $61,750. (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.)
Brief Exercise 17-5
Bridgeport Corporation purchased 440 shares of Sherman Inc. common stock for $12,000 (Bridgeport does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $34.50 per share.
Prepare Bridgeport’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) (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.)
Brief Exercise 17-7
Riverbed Corporation purchased for $270,000 a 30% interest in Murphy, Inc. This investment enables Riverbed to exert significant influence over Murphy. During the year, Murphy earned net income of $188,000 and paid dividends of $66,000.
Prepare Riverbed’s journal entries related to this investment. (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.)
Brief Exercise 17-11
Sage Company invests $10,300,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $10,790,000. Interest is paid on January 1.
Prepare journal entries for Sage Company to (a) record the transactions related to these bonds in 2017, assuming Sage does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Sage Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)
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Account Titles and Explanation |
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(To record interest revenue) |
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(To record fair value adjustment) |
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Account Titles and Explanation |
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(To record interest revenue) |
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(To record fair value adjustment) |
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Click if you would like to Show Work for this question: |
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Brief Exercise 17-13
Presented below are two independent cases related to available-for-sale debt investments.
For each case, determine the amount of impairment loss, if any. (If no loss, please enter 0. Do not leave any fields blank.)
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$ |
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Click if you would like to Show Work for this question: |
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Exercise 17-12
The following are two independent situations.
Situation 1
Riverbed Cosmetics acquired 10% of the 196,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Martinez declared and paid $69,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $116,600 for the year. At December 31, the market price of Martinez Fashion was $13 per share.
Situation 2
Marin, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 31,000 outstanding shares of common stock at a total cost of $8 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $38,400. On December 31, Seles reported a net income of $92,500 for the year.
Prepare all necessary journal entries in 2017 for both situations. (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.)
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Exercise 17-27
On August 15, 2016, Windsor Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $792. The notional value of the call option is 880 shares, and the option price is $88. The option expires on January 31, 2017. The following data are available with respect to the call option.
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Market Price of Counting |
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Prepare the journal entries for Windsor for the following dates.
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Investment in call option on Counting Crows shares on August 15, 2016. |
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September 30, 2016—Windsor prepares financial statements. |
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December 31, 2016—Windsor prepares financial statements. |
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January 15, 2017—Windsor settles the call option on the Counting Crows shares. |
(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.)
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Account Titles and Explanation |
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(To record the change in intrinsic value.) |
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(To record the time value change.) |
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(To record the change in intrinsic value.) |
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(To record the time value change.) |
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(To record the time value change.) |
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(To record settlement of call option.) |
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Click if you would like to Show Work for this question: |
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