Question3
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, $109 par, 218 shares | $43,400 | ||
| April 1 | U.S. government bonds, 10%, due April 1, 2022, interest payable April 1 and October 1, 111 bonds of $1,000 par each | 111,000 | ||
| July 1 | McGrath Company 12% bonds, par $53,600, dated March 1, 2012, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2032 | 57,888 |
(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
| Account Titles and Explanation | Debit | Credit |
(b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2012, using the straight-line method. (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
| Account Titles and Explanation | Debit | Credit |
(c) The fair values of the investments on December 31, 2012, were:
| Sharapova Company common stock | $32,650 | |
| U.S. government bonds | 145,580 | |
| McGrath Company bonds | 60,400 |
What entry or entries, if any, would you recommend be made (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
| Account Titles and Explanation | Debit | Credit |
(d) The U.S. government bonds were sold on July 1, 2013, for $120,940 plus accrued interest. Give the proper entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
| Account Titles and Explanation | Debit | Credit |
List Of Accounts
Question 3
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Bonds Payable ——————————————————————————————————————–
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 s pertinent accounts.
Instructions: For both classes of securities presented above, describe how the results of the valuation adjustments made to reflect the application of the fair value rule would be reflected in the body of and notes to Brooks 2012 financial statements. |