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, $100 par, 200 shares 37,400
April 1
U.S. government bonds, 11%, due April 1, 2022, interest payable
April 1
and October 1, 110 bonds of $1,000 par each 110,000
July 1
McGrath Company 12% bonds, par $50,000, dated March 1, 2012,
purchased at 104 plus accrued interest, interest payable
annually on March 1, due March 1, 2032 54,000
Instructions
(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.
(b)
Prepare the entry to record the accrued interest and the amortization of
premium on December 31, 2012, using the straight-line method.
(c) The
fair values of the investments on December 31, 2012, were:
Sharapova
Company common stock 31,800
U.S.
government bonds 124,700
McGrath
Company bonds 58,600
What
entry or entries, if any, would you recommend be made?
(d) The
U.S. government bonds were sold on July 1, 2013, for $119,200 plus accrued
interest. Give the proper entry.
(a) Debt
Investments (Available-for-Sale)........................ 162,000*
Equity
Investments (Available-for-Sale)......................... 37,400
Interest
Revenue ($50,000 X .12 X 4/12)....................... 2,000
Investments........................................................................... 201,400
*[$110,000
+ ($50,000 X 1.04)]
(b) December 31, 2012
Interest
Receivable............................................................... 8,025
Debt
Investments (Available-for-Sale).............................. 51
Interest
Revenue.................................................................. 7,974
[Accrued interest
[
$50,000 X .12 X 10/12 = $5,000
[Premium
amortization
[ 6/236 X $2,000 = (51)
[Accrued
interest
[ $110,000 X .11 X 3/12 = 3,025
$7,974 ]
(c) December 31, 2012
Available-for-Sale
Portfolio
|
Securities
|
Cost
|
Fair Value
|
Unrealized Gain (Loss)
|
|
Sharapova Company stock
|
$ 37,400
|
$ 31,800
|
$ (5,600)
|
|
|
110,000
|
124,700
|
14,700
|
|
McGrath Company bonds
|
51,949*
|
58,600
|
6,651
|
|
Total
|
$199,349
|
$215,100
|
15,751
|
|
Previous fair value adjustment
balance
|
|
|
0
|
|
Fair value adjustment—Dr.
|
|
|
$15,751
|
($50,000
X 1.04) – $51
Fair Value Adjustment (Available-for-Sale)..................... 15,751
Unrealized
Holding Gain or Loss—
Equity........................................................................... 15,751
(d) July 1, 2013
Cash
($119,200 + $3,025).....................................
122,225
Debt
Investments (Available-for-Sale)......................
110,000
Interest
Revenue
($110,000 X .11 X 3/12)............................................ 3,025
Gain
on Sale
