Chapter Review
15-7ePractice Exercises
Equity Investments: Less than 20% Ownership
OBJ. 2
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EE 15-1 On January 23, 15,000 shares of Aurora Company’s common stock are acquired at a price of $25 per share plus a $150 brokerage commission. On April 12, a $0.50-per-share dividend was received on the Aurora Company stock. On June 10, 6,000 shares of the Aurora Company stock were sold for $31 per share less a $100 brokerage commission. At the end of the accounting period on December 31, the fair value of the remaining 9,000 shares of Aurora Company’s stock was $30 per share. Aurora Company has 200,000 shares of common stock outstanding. Journalize the entries for the original purchase, dividend, sale, and change in fair value under the fair value method.
Equity Investments: Less than 20% Ownership
OBJ. 2
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EE 15-1 On September 12, 3,000 shares of Denver Company’s common stock are acquired at a price of $40 per share plus a $300 brokerage commission. On October 15, an $0.80-per-share dividend was received on the Denver Company stock. On November 10, 1,600 shares of the Denver Company stock were sold for $36 per share less a $150 brokerage commission. At the end of the accounting period on December 31, the fair value of the remaining 1,400 shares of Denver Company’s stock was $35 per share. Denver Company has 400,000 shares of common stock outstanding. Journalize the entries for the original purchase, dividend, sale, and change in fair value under the fair value method.
Equity Investments: 20%–50% Ownership
OBJ. 2
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EE 15-2 On January 2, 20Y7, Mikedes Company acquired 30% of the outstanding stock of Violet Company for $720,000. For the year ended December 31, 20Y7, Violet Company earned income of $190,000 and paid dividends of $40,000. On January 31, 20Y8, Mikedes Company sold all of its investment in Violet Company stock for $770,000. Journalize the entries for Mikedes Company for the purchase of the stock, the share of Violet income, the dividends received from Violet Company, and the sale of the Violet Company stock.
OBJ. 2
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EE 15-2 On January 2, 20Y4, Whitworth Company acquired 40% of the outstanding stock of Aloof Company for $340,000. For the year ended December 31, 20Y4, Aloof Company earned income of $180,000 and paid dividends of $10,000. On January 31, 20Y5, Whitworth Company sold all of its investment in Aloof Company stock for $405,000. Journalize the entries for Whitworth Company for the purchase of the stock, the share of Aloof income, the dividends received from Aloof Company, and the sale of the Aloof Company stock.
Bond (Held-to-Maturity) Investments
OBJ. 3
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EE 15-3 Journalize the entries to record the following selected bond investment transactions for Beacon Trust:
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Purchased for cash $420,000 of Vasquez City 6% bonds at 100 plus accrued interest of $6,300.
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Received first semiannual interest payment.
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Sold $210,000 of the bonds at 99 plus accrued interest of $1,050.
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Received face value of remaining bonds at their maturity.
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Bond (Held-to-Maturity) Investments
OBJ. 3
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EE 15-3 Journalize the entries to record the following selected bond investment transactions for Marr Products:
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Purchased for cash $180,000 of Hotline Inc. 5% bonds at 100 plus accrued interest of $1,500.
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Received first semiannual interest payment.
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Sold $90,000 of the bonds at 102 plus accrued interest of $750.
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Received face value of remaining bonds at their maturity.
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Trading Securities at Fair Value
OBJ. 4
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EE 15-4 On January 1, 20Y3, Valuation Allowance for Trading Investments had a zero balance. On December 31, 20Y3, the cost of the trading securities portfolio was $346,000, and the fair value was $309,000. Journalize the December 31, 20Y3, adjusting entry to record the unrealized gain or loss on trading investments.
Trading Securities at Fair Value
OBJ. 4
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EE 15-4 On January 1, 20Y9, Valuation Allowance for Trading Investments had a zero balance. On December 31, 20Y9, the cost of the trading securities portfolio was $72,600, and the fair value was $79,100. Journalize the December 31, 20Y9, adjusting entry to record the unrealized gain or loss on trading investments.
Available-for-Sale Securities at Fair Value
OBJ. 4
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EE 15-5 On January 1, 20Y5, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 20Y5, the cost of the available-for-sale securities was $43,290, and the fair value was $39,120. Journalize the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31, 20Y5.
Available-For-Sale Securities at Fair Value
OBJ. 4
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EE 15-5 On January 1, 20Y7, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 20Y7, the cost of the available-for-sale securities was $19,040, and the fair value was $22,870. Journalize the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31, 20Y7.
Dividend Yield
OBJ. 5
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EE 15-6 On June 30, Rae Corporation had a market price of $100 per share of common stock. For the previous year, Rae paid an annual dividend of $8.00 per share. Compute the dividend yield for Rae Corporation.
Dividend Yield
OBJ. 5
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EE 15-6 On October 23, Brynner Company had a market price of $60 per share of common stock. For the previous year, Brynner paid an annual dividend of $0.90 per share. Compute the dividend yield for Brynner Company.