45 On January 1, 2019, an entity purchased equity investments held for trading (see attached image). On July 1, 2020, the entity sold Security A for 1.900.000
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- Refer to the information in RE13-11. Assume that on December 31, 2019, the investment in Cornett Company stock has a market value of 10,500. Prepare the year-end journal entry to record the unrealized gain or loss.Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.Hamilton Companys balance sheet on January 1, 2019, was as follows: Korbel Company is considering purchasing Hamilton (a privately held company) and discovers the following about Hamilton: a. No allowance for doubtful accounts has been established. A 10,000 allowance is considered appropriate. b. Marketable securities are valued at cost. The current market value is 60,000. c. The LIFO inventory method is used. The FIFO inventory of 140,000 would be used if the company is acquired. d. Land, included in property, plant, and equipment, which is recorded at its cost of 50,000, is worth 120,000. The remaining property, plant, and equipment is worth 10% more than its depreciated cost. e. The company has an unrecorded trademark that is worth 70,000. f. The companys bonds are currently trading for 130,000. g. The pension liability is understated by 40,000. Required: 1. Compute the amount of goodwill if Korbel agrees to pay 500,000 cash for Hamilton. 2. Next Level What are the reasons that the book value of Hamiltons net identifiable assets differ from their market value? 3. Prepare the journal entry to record the acquisition on the books of Korbel assuming Hamilton is liquidated. 4. If Korbel agrees to pay only 400,000 cash, how much goodwill exists? 5. If Korbel pays only 400,000 cash, prepare the journal entry to record the acquisition on its books, assuming Hamilton is liquidated.
- Investments On October 4, 2019, Collins Company purchased 100 bonds of Steph Company for 6,400 as a short-term investment in securities classified as available for sale. On December 31, 2019, the bonds had a fair value of 6,300, and on February 8, 2020, Collins sold the bonds for 6,700. Required: In journal entry form, prepare the spreadsheet entries to record these transactions for Collins Companys 2019 and 2020 statement of cash flows.Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Additional data: Net income for 2019 totaled 119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants arc outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which each of the convertible securities should be included in diluted earnings per share. 3. Compute basic earnings per share. 4. Compute diluted earnings per share. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement.On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
