In 2019, its first year of operations, Brighton Finance Corporation, based in London, UK, had the following transactions regarding its investments (currency in British pound, £): May 1 Purchased 600 Clifford Ltd. common shares for £60 per share. This investment is held for trading purposes. June 1 Purchased 1,000 bonds of Gladstone Inc. at face-value price of £100 each. These bonds bear interest at 6%, which is paid semi-annually on November 30 and May 31 each year. They were also purchased for trading purposes. July 1 Purchased 4,000 Waterloo Corporation common shares for £70 per share. This represents 25% of the issued common shares. Because of this investment, the directors of Waterloo have invited a Brighton’s executive to sit on their board. Sep. 1 Received a £1-per-share cash dividend from Waterloo Corporation. Nov. 1 Sold 200 Clifford Ltd. common shares for £63 per share. Nov. 30 Interest on the Gladstone Inc. bonds was received. Dec. 15 Received a £0.50-per-share cash dividend on Clifford Ltd. common shares. Dec. 31 On this date, the fair values per share were £55 for Clifford Ltd. and £73 for Waterloo Corporation. The fair value of the Gladstone bonds was £101 each. Waterloo reported a profit for the year ended December 31, 2019, of £100,000. Instructions: Make journal entries on the above transactions up to Dec. 15. Prepare the adjusting journal entries required to report the investments at their fair value and accrue any investment revenue at the end of 2019. Show the partial presentation of each investment and the related investment income reflected in Brighton’s 2019 statement of financial position and income statement.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

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In 2019, its first year of operations, Brighton Finance Corporation, based in London, UK, had the following transactions regarding its investments (currency in British pound, £):

May 1 Purchased 600 Clifford Ltd. common shares for £60 per share. This investment is held for trading purposes.

June 1 Purchased 1,000 bonds of Gladstone Inc. at face-value price of £100 each. These bonds bear interest at 6%, which is paid semi-annually on November 30 and May 31 each year. They were also purchased for trading purposes.

July 1 Purchased 4,000 Waterloo Corporation common shares for £70 per share. This represents 25% of the issued common shares. Because of this investment, the directors of Waterloo have invited a Brighton’s executive to sit on their board.

Sep. 1 Received a £1-per-share cash dividend from Waterloo Corporation.

Nov. 1 Sold 200 Clifford Ltd. common shares for £63 per share.

Nov. 30 Interest on the Gladstone Inc. bonds was received.

Dec. 15 Received a £0.50-per-share cash dividend on Clifford Ltd. common shares.

Dec. 31 On this date, the fair values per share were £55 for Clifford Ltd. and £73 for

Waterloo Corporation. The fair value of the Gladstone bonds was £101 each. Waterloo reported a profit for the year ended December 31, 2019, of £100,000.

Instructions:

Make journal entries on the above transactions up to Dec. 15.
Prepare the adjusting journal entries required to report the investments at their fair value and accrue any investment revenue at the end of 2019.
Show the partial presentation of each investment and the related investment income reflected in Brighton’s 2019 statement of financial position and income statement.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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