Acc557 Financial Accounting: Week 8 Chapter 12 (E12-7, E12-8, E12-12, P12-2A)

Acc557 Financial Accounting
Week 8 Chapter 12 (E12-7, E12-8, E12-12, P12-2A)

EXERCISE 12-7
On January 1, Vince Corporation purchased a 25% equity in Morelli Corporation for $180,000. At December 31, Morelli declared and paid a $60,000 cash dividend and reported net income of $200,000.

Instructions:
a. Journalize the transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
b. Determine the amount to be reported as an investment in Morelli stock at December 31

EXERCISE 12-8
Presented below are two independent situations.
1. Chicory Cosmetics acquired 15% of the 200,000 shares of common stock of Racine Fashion at a total cost of $13 per share on March 18, 2014. On June 30,Racinedeclared and paid a $60,000 dividend. On December 31,Racinereported net income of $122,000 for the year. At December 31, the market price of Racine Fashion was $15 per share. The stock is classified as non-trading.
2. Frank, Inc., obtained significant influence over Nowak Corporation by buying 30% of Nowak’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2014. On June 15, Nowak declared and paid a cash dividend of $30,000. On December 31, Nowak reported a net income of $80,000 for the year.

Instructions:
Prepare all the necessary journal entries for 2014 for (a) Chicory Cosmetics and (b) Frank, Inc. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

EXERCISE 12-12
Zippydah Company has the following data at December 31, 2014.
Securities Cost Fair Value
Trading 120,000 124,000
Non-trading 100,000 94,000
The non-trading securities are held as a long-term investment.

Instructions:
(a) Prepare the adjusting entries to report 1. Trading securities at fair value and 2. Non-trading securities at fair value. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) Indicate the statement presentation of each class of securities.

PROBLEM 12-2A
In January 2014, the management of Stefan 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 Superior common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pawlik common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Venice 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 Superior common stock.
Aug. 1 Sold 200 shares of Superior common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pawlik common stock.
Oct. 1 Received the semiannual interest on theVenicebonds.
Oct. 1 Sold the Venice bonds for $50,000 less $1,000 brokerage fees.
At December 31, the fair value of the Superior common stock was $55 per share. The fair value of the Pawlik common stock was $24 per share.

Instructions:
a. Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.) (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
b. Prepare the adjusting entry at December 31, 2014, to report the investment securities at fair value. All securities are considered to be trading securities. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
c. Show the balance sheet presentation of investment securities at December 31, 2014.
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