Chapter 17 - Group Work
1.
On January 1, 2014, XYZ company purchased 10% Bonds, having a maturity value of $200,000, for $227,181.
The bonds provide bondholders with an 8% yield and mature in 10 years. Interest is paid on July 1 st and
December 31 st of each year. The bonds are classified as Held-to-Maturity and will be reported using the effective interest method. a) Prepare an amortization table for the 1 st and 2 nd year of the bond.
Cash Rec’d Interest Rev Prem Amort Carrying Value
7/1 10,000 9,087 913 226,268
12/31 10,000
7/1 10,000
12/31 10,000
9,051
9,013
8,973
949
987
1,027
225,319
224,332
223,305 b) Prepare the journal entry to be made on January 1, 2014 for the purchase of this bond investment.
DR
Held-to-Maturity Securities 227,181
CR
Cash 227,181 c) Prepare the journal entry to be made on July 1, 2014 for this bond investment.
Cash
DR
10,000
Interest Revenue
CR
9,087
Held-to-Maturity Securities 913 d) Prepare the journal entry to be made on December 31, 2014 for this bond investment.
Cash
DR
10,000
CR
Interest Revenue 9,051
Held-to-Maturity Securities 949 e) What is the total interest revenue reported on the Income Statement in 2014 for this bond?
$18,138 f) What is the new carrying value or balance of the Held-to-Maturity securities account on December 31, 2014?
$225,319

2. On January 1, 2014, ABC company purchased 5% bonds, with a maturity value of $100,000 for $92,522. The bonds provide bondholders with a 6% yield and mature in 10 years. Interest is paid on July 1 st and December 31 st of each year. The bonds are classified as Available-for-Sale and will be reported using the effective interest method. a) Prepare an amortization table for the 1 st year of the bond.
Cash Rec’d Interest Rev Disct Amort Carrying Value
7/1 2,500
12/31 2,500
2,776
2,784
276
284
92,798
93,082 b) Prepare the journal entry to be made on January 1, 2014 for the purchase of this bond investment.
CR DR
Available-for-Sale Securities 92,522
Cash 92,522 c) Prepare the journal entry to be made on July 1, 2014 for this bond investment.
CR
Cash
DR
2,500
Available-for-Sale Securities 276
Interest Revenue 2,776 d) Prepare the journal entry to be made on December 31, 2014 for this bond investment.
CR
Cash
DR
2,500
Available-for-Sale Securities 284
Interest Revenue 2.784
e) What is the total bond interest revenue reported on the Income Statement in 2014 for this bond?
$5,560 f) What is the new carrying value or balance of the Available-for-Sale securities account at December 31, 2014?
$93,082

3.
a) At December 31, 2014 , ABC company held the following Available-for-Sale securities and values.
Amortized Cost
Available-for-Sale Security A $93,124
Available-for-Sale Security B $103,050
$196,174
Fair Value
$82,500
$105,700
$188,200
Prepare a journal entry to adjust the Available-for-Sale security investments to fair value – assuming no beginning balance in the Adjustment account.
DR
Unrealized Loss on AFS Securities - OCI Equity 7,974
CR
Adjustment to Fair Value-AFS Securities 7,974
If the security investments were classified as Trading securities, what would have been the journal entry to adjust the Trading security investments to fair value?
DR
Unrealized Loss on Trading Securities - Income 7,974
Adjustment to Fair Value-Trading Securities
CR
7,974 b) At December 31, 2015
, the following year, ABC company’s
Available-for-Sale securities had the following values.
Amortized Cost Fair Value
Available-for-Sale Security A $93,721
Available-for-Sale Security B $104,600
$198,321
$94,600
$105,300
$199,900
Prepare a journal entry to adjust Available-for-Sale security investments to fair value. Assume there is currently a beginning credit balance of $7,974 in the adjustment account.
DR CR
Adjustment to Fair Value – AFS Securities 9,553
Unrealized Gain on AFS Securities – OCI Equity 9,553
If the security investments were classified as Trading securities, what would have been the journal entry to adjust the Trading security investments to fair value?
DR
Adjustment to Fair Value – Trading Securities 9,553
CR
Unrealized Gain on Trading Securities – Income 9,553

4.
a) On September 1, 2014, XYZ company purchased common stock from 3 companies – all representing less than 20% of the voting stock outstanding.
Cost
Maddow Inc. $55,000
Smith Inc.
Rudolph Inc.
$120,000
$78,000
$253,000
Prepare a journal entry to record the purchase – assume they are considered Available-For-Sale securities.
DR
Available For Sale Securities $253,000
Cash
CR
$253,000 b) On December 30, 2014, a cash dividend of $2,000 was received. Prepare the journal entry to record this transaction.
Cash $2,000
Dividend Revenue
DR CR
$2,000 c) At December 31, 2014, XYZ company’s stock portfolio had the following values.
Cost
Maddow Inc. $55,000
Fair Value
$68,600
Smith Inc.
Rudolph Inc.
$120,000
$78,000
$128,200
$65,500
$253,000 $262,300
Prepare the journal entry to adjust XYZ company’s stock investments to fair value assuming they are classified as:
1Available-for-Sale securities
CR DR
Adjustment to Fair Value – AFS Securities $9,300
Unrealized Gain on AFS Securities – OCI Equity $9,300
2Trading securities
DR
Adjustment to Fair Value – Trading Securities
Unrealized Gain on Trading Securities – Income
$9,300
CR
$9,300

d) On March 20, 2015, all shares of the Smith Inc. stock was sold for $127,500. Prepare the necessary journal entry.
DR CR
Cash
AFS Securities
$127,500
Realized Gain on Sale
$120,000
$7,500 e) At December 31, 2015, assume the following fair values of the remaining stocks.
Cost
Maddow Inc. $55,000
Rudolph Inc. $78,000
Fair Value
$40,200
$69,500
$133,000 $109,700
Assume the Adjustment account has a beginning Debit balance of $9,300. Prepare a journal entry to adjust the security investments to fair value assuming they are classified as:
1Available-for-Sale securities
Unrealized Loss on AFS Securities – OCI Equity
Adjustment to Fair Value – AFS Securities
DR
$32,600
CR
$32,600
2Trading securities
DR
Unrealized Loss on Trading Securities – Income
Adjustment to Fair Value – Trading Securities
$32,600
CR
$32,600

5.
a) On January 1, 2014, XYZ Co. purchased 30% of Raider Inc.’s voting stock for $420,000 at $30 p/share.
Prepare the necessary journal entry.
DR CR
Raider Inc. Investment
Cash
$420,000
$420,000 b) At December 31, 2014, Raider Inc. reported $150,000 of Net Income for the period . Our share was -
$45,000. Prepare the necessary journal entry.
DR CR
Raider Inc. Investment
Investment Income
$45,000
$45,000 c) At December 31, 2014 the shares of Raider Inc. in our portfolio had a fair value of $468,000. Prepare a journal entry for this change in fair value – if necessary.
No Entry d) On January 20, 2015, Raider Inc. announced and paid a cash dividend of $65,000 – our share $19,500.
Prepare the necessary journal entry.
DR CR
Cash
Raider Inc. Investment
$19,500
$19,500 f) At December 31, 2015, Raider Inc. reported a Net Loss of $86,000 – our share $25,800. Prepare the journal entry.
CR DR
Loss on Investment
Raider Inc. Investment
$25,800
$25,800