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Chapter 10: Q.11E_2 (page 569)

Question: E10-11 Accounting for debt investments

Peyton Investments completed the following investment transactions during 2018:

2018

Jan. 5 Purchased Vedder Company’s \(400,000 bond at face value. Peyton classified the investment as available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and December 31 and matures on December 31, 2021. Management’s intent is to keep the bonds for several years.

Jun. 30 Received an interest payment from Vedder.

Dec. 31 Received an interest payment from Vedder.

31 Adjusted the investment to its current market value of \)396,000

Requirements

2. Prepare a partial balance sheet for Peyton’s Vedder investment as of December 31, 2018.

Short Answer

Expert verified

Answer

Particular

Amount $

Assets:

Available for sale – Debt investment

$396,000

Equity:

Other comprehensive income

($4,000)

Step by step solution

01

Definition of Balance Sheet

The financial statement of the business entity that is used to report all the assets and liabilities of each type is known as a balance sheet. It classifies all of theobligations and resources as long-term and short-term.

02

Partial balance sheet

  1. Available for sale securities are reported on the asset side on their fair value. Its classification as current and non-current depends upon management.
  2. The unrealized loss will be reported in theequity section as other comprehensive income.

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Most popular questions from this chapter

What does the rate of return on total assets measure, and how is it calculated?

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

2. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant’s bond be reported, if at all?

In 150 words or fewer, explain the difference between trading debt investments and available-for-sale debt investments.

What adjustment must be made at the end of the period for trading debt investments and available-for-sale debt investments?

Question: P10-23B Accounting for equity investments

The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).

During the year, Text Source completed the following investment transactions:

Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.

May 15 Received a cash dividend of \(0.69 per share on the Josh investment.

Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.

31 Received Taylor’s annual report showing \(100,000 of net income.

31 Received Josh’s annual report showing \)620,000 of net income for the year.

31 Taylor’s stock fair value at year-end was \(620,000.

31 Josh’s common stock fair value at year-end was \)14 per share.

Requirements

Prepare Text Source’s partial balance sheet at December 31, 2018, from your answers in Requirement 2.

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