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Chapter 10: 1RQ (page 566)
What is a debt security?
Security reflecting the terms and conditions of the debt is known as debt security.
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Classifying and accounting for debt and equity investments
Jetway Corporation generated excess cash and invested in securities as follows: 2018
Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.
Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.
Sep. 16 Sold the Pogo stock for \(13.40 per share.
Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.
Dec. 31 Received a \(100 interest payment from Violet.
31 Adjusted the Violet bond to its market value of \)22,000.
Requirements
Where is the unrealized holding gain or loss associated with the trading debt investment reported?
Question: P10-22B Classifying and accounting for debt and equity investments
Captain Transfer Corporation generated excess cash and invested in securities as follows:
2018
Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.
Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.
Sep. 16 Sold the Naradon stock for \(13.70 per share.
Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.
Dec. 31 Received a \(600 interest payment from Purple.
31 Adjusted the Purple bond to its market value of \)44,000.
Requirements
Where is the unrealized holding gain or loss associated with the trading debt investment reported?
Question: P10-25 Accounting for debt and equity investments
This problem continues the Canyon Canoe Company situation from Chapter 9. Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019.
Jul. 1 Purchased 8,000 shares in Adobe Outdoor Adventure Company for \(3 per share. Canyon Canoe does not have significant influence over Adobe.
7 Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for \)5 per share. Canyon Canoe does have significant influence over Bison.
10 Purchased a bond from Camelot Canoes with a face value of \(80,000. Canyon Canoe intends to hold the bond to maturity. The bond pays interest semiannually on June 30 and December 31.
Sep. 30 Received dividends of \)0.15 per share from Adobe.
Nov. 1 Received dividends of \(0.30 per share from Bison.
Dec. 31 Received an interest payment of \)3,200 from Camelot Canoes.
31 Bison Backpacks reported net income of \(30,000 for the year.
31 Adjusted the Adobe stock for a market value of \)2.98 per share.
Requirements
1. Journalize the transactions including any entries, if required, at December 31, 2019.
Match the key term to the scenario.
1. Available-for-sale debt investments. | a. Jane owns 53% of Richard’s Roses’s voting stock. |
2. Controlling interest equity investments. | b. Joe owns debt security in Bones, Inc. and intends to hold it until maturity. |
3. Trading debt investments. | c. Jeannie owns a debt security in Cricket, Inc. and plans on selling the debt after one year. |
4. Held-to-maturity debt investments. | d. Jimenez owns 5% of Delgado, Inc.’s voting stock but does not have the ability to participate in the decisions of Delgado, Inc. |
5. Significant influence on equity investments. | e. Jacob owns 24% of Pay, Inc.’s voting stock and has the ability to exert influence over Pay, Inc. |
6. No significant influence on equity investments. | f. Jim owns a debt security in Tag, Inc.’s and plans on holding the debt for only a week. |
Accounting for equity investments
On January 1, 2018, Bark Company invests \(10,000 in Roots, Inc. stock. Roots pays Bark a \)400 dividend on August 1, 2018. Bark sells the Roots’s stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.
Requirements
1. Journalize the transactions for Bark’s investment in Roots’s stock.
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