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Chapter 10: Q13RQ. (page 567)
How are held-to-maturity debt investments reported on the financial statements?
Held to maturity debt investments arereported on the asset side on the basis of their maturity period.
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Why would a company invest in debt or equity securities?
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.
Classifying and accounting for equity investments
Boston Today Publishers completed the following investment transactions during 2018 and 2019:
2018
Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.
23. Received a cash dividend of \)1.50 per share on the Loveable stock.
31. Adjusted the investment to its market value of \(11.00 per share.
2019
Jan. 27 Sold the Loveable stock for \)18.20 per share.
Requirements
On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?
What does the rate of return on total assets measure, and how is it calculated?
Question: Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a current ratio of 1.2 or better. After reviewing the annual reports, the CEO, N. O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, “We’ve decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the adjusting entries as of the current year-end.” Carl made the adjustments even though he doesn’t think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company’s travel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan.
Requirements
Has a fraud occurred? If so, what is the fraud?
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