Acc423 Intermediate Accounting: Week 3 (E17-7, E17-12, P17-3, P17-8b)_March 2014 Version

Note: There are several versions of this weekly assignment so please make sure you review and compare with your own questions before buying!

Acc423 Intermediate Accounting
Week 3 Individual Assignment (March 2014 Version)

E17-7 (Trading Securities Entries)
On December 21, 2012, Zurich Company provided you with the following information regarding its trading securities.
December 31, 2012
Investments(Trading) Cost Fair Value Unrealized Gain (Loss)
Stargate Corp. stock 21,300 20,300 (1,000)
Carolina Co. stock 10,710 9,710 (1,000)
Vectorman Co. stock 21,300 21,830 530
Total Portfolio 53,310 51,840 (1,470)
Previous securities fair value adjustment balance -
Securities fair value adjustment—Cr. $(1,470)
During 2013, Carolina Company stock was sold for $10,310. The fair value of the stock on December 31, 2013, was: Stargate Corp. stock - $20,620; Vectorman Co. stock - $21,640.

(a) Prepare the adjusting journal entry needed on December 31, 2012.
(b) Prepare the journal entry to record the sale of the Carolina Company stock during 2013. (c) Prepare the adjusting journal entry needed on December 31, 2013.

E17-12 (Journal Entries for Fair Value and Equity Methods)
Presented below are two independent situations.

Situation 1
Hatcher Cosmetics acquired 10% of the 220,300 shares of common stock of Ramirez Fashion at a total cost of $16 per share on March 18, 2012. On June 30, Ramirez declared and paid a $83,900 cash dividend. On December 31, Ramirez reported net income of $130,800 for the year. At December 31, the market price of Ramirez Fashion was $17 per share. The securities are classified as available-for-sale.

Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 26% of Nadal's 31,400 outstanding shares of common stock at a total cost of $10 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $42,700. On December 31, Nadal reported a net income of $90,800 for the year

Prepare all necessary journal entries in 2010 for each situation.

P17-3 (Available-for-Sale Investments)
Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.
Feb. 1, 2012 Sharapova Company common stock, $115 par, 230 shares 42,400
1-Apr U.S. government bonds, 10%, due April 1, 2022, interest payable April 1 and October 1, 115 bonds of $1,000 par each 115,000
1-Jul McGrath Company 12% bonds, par $53,000, dated March 1, 2012 purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2032 57,240

(Round all computations to the nearest dollar).
a. Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
b. Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2010, using the straight-line method. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round computations to 3 decimal places, e.g. 12.252 and the final answers to zero decimal places, e.g. 12,510.)
c. The fair values of the securities on December 31, 2012, were:
Sharapova Company common stock 31,950
U.S. government bonds 149,780
McGrath Company bonds 63,110
What entry or entries, if any, would you recommend be made? (Round answers to 0 decimal places, e.g. 25,000.)
d. The U.S. government bonds were sold on July 1,2011, for $120,100 plus accrued interest. Give the proper entry. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

P17-8 (b only) (Fair Value and Equity Methods)
Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of investing idle cash in equity securities. In particular, Brooks has made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Brooks does not have significant influence over the operations of Norton Industries.
Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare the 2012 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information about Brooks' pertinent accounts.
1. Brooks has trading securities related to Delaney Motors and Patrick Electric. During this fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these shares currently have a market value of $1,600,000. Brooks' investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2012 at $20 per share, a purchase that currently has a value of $720,000.
2. Prior to 2012, Brooks invested $22,500,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,500,000 on December 31, 2011. Brooks' 12% ownership of Norton Industries has a current market value of $22,225,000.

For both classes of investments presented above, describe how the results of the valuation adjustments made in (a) would be reflected the application of the "fair value" rule would be reflected in the body of and notes to Brooks' 2012 financial statements (Refer to Problem 17-8).
Powered by