FINANCIAL ACCOUNTING CUSTOM PACKAGE
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ISBN: 9781256636755
Author: REIMERS
Publisher: Pearson Custom Publishing
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Chapter 10B, Problem 3EA
To determine
Calculate the amount at which the investments would be valued for the yearend
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The Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?
Moonstone Company reported the following information at year-end:
*Government treasury bills of P2,500,000, purchased on December 31 at which time they had two months to go until maturity.
*Cash of P5,000,000 in the form of coin, currency and savings account.
*Commercial papers of P1,500,000 with term on 9 months but purchased on Dec. 31 at which time they had three months to go until maturity.
*Share investments of P500,000 that are very actively traded in stock market.
What total amount should be reported as “cash”?
Kasey Hartman is the controller for Wholemart Company, which has numerous long-term investments in debt securities. Wholemart’s investments are mainly in five-year bonds. Hartman is preparing its year-end financial statements. In accounting for long-term debt securities, she knows that each long-term investment must be designated as a held-to-maturity or an available-for-sale security. Interest rates rose sharply this past year, causing the portfolio’s fair value to substantially decline. The company does not intend to hold the bonds for the entire five years. Hartman also earns a bonus each year, which is computed as a percent of net income. Required 1. Will Hartman’s bonus depend in any way on the classification of the debt securities? Explain. 2. What criteria must Hartman use to classify the securities as held-to-maturity or available-for-sale? 3. Is there likely any company oversight of Hartman’s classification of the securities? Explain.
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- Which of the following best qualifies as a "cash equivalent?" A firm's investment in "held to maturity" government treasury bonds that mature in 5 years. A firm's equity investment in an unconsolidated subsidiary of a privately held firm. A firm's investment in 90-day government treasury bills. All of these.arrow_forwardThe National Bank raised capital through the sale of $150 million face alue of eight percent coupon rate, ten year bonds. The bonds paid interest semiannualy and were sold at at time when equivalent risk- rated bonds carried a yield rate of ten percent. Calaculate the proceeds that the bank recieved from the sale of the eight percent bonds. How will the bonds be disclosed on the balance sheet immediately following the sale? Calaculatt the interest expense on the bonds for the first year that the bonds are outstanding. Calculate the book value of the bonds at the end of the first year. Question 1: Fill in the Bond Amortization Table and the highlighted cells using the information from E9.19 in the Data Tab. Show only positive numbers in the first table. Use Excel to do the calculations and don't round. Period Cash Payments Interest Expense Amortized Discount Discount Balance Face Value Book Value 0 $131,306,684.00 150,000,000 $150,000,000.00 1…arrow_forwardThe following information is also available: 1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1,2023) P10,000 and land P12,000. 2. Long term investments include a P4,600 investment in fair value though other comprehensive income securitiesthat is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be helduntil their December 31, 2029 maturity date. 3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costingP29,600. 4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, andtreasury shares that costs P1,800. 5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bondretirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated. 6. Current liabilities include accounts payable P19,400, bonds payable…arrow_forward
- The following information is also available: 1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1,2023) P10,000 and land P12,000. 2. Long term investments include a P4,600 investment in fair value though other comprehensive income securitiesthat is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be helduntil their December 31, 2029 maturity date. 3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costingP29,600. 4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, andtreasury shares that costs P1,800. 5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bondretirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated. 6. Current liabilities include accounts payable P19,400, bonds payable…arrow_forwardHusky Corporation is a general contractor which occasionally invests excess cash in debt securities. The following transactions took place in the fourth quarter of 2021. On October 1, 2021, purchased $6 million of 3% Microsoft bonds at par value. These bonds pay interest on June 30 and December 31 of each year, and were classified as Held to Maturity (“HTM”). On November 1, 2021, purchased $3 million of 4% Amazon bonds at par value. These bonds pay interest on September 30 and March 31 of each year, and were classified as Available for Sale (“AFS”) On December 1, 2021, purchased $2 million of 3% US Treasury Bonds at par value, hoping to earn profits on short-term price increases driven by a decline in interest rates. These bonds were classified as Trading Securities. (“TS”) On December 31, 2021, received the interest payment ($45,000) on the Microsoft bonds purchased on October 1. Requirements: Prepare journal entries for the transactions in a. through d. above. Prepare journal…arrow_forwardSunTrust Bank (Easy). In 1993, SunTrust Bank of Atlanta reported investment securities on its balance sheet of $10,644 million, an increase over the $8,715 million reported for 1992. Footnotes revealed that most of the securities were interest-bearing debt securities. But $1,077 million of the 1993 securities were shares held in the Coca-Cola Company, carried at market value. In 1992, the bank had carried these securities on the balance sheet at their historical cost of $110 million. Which carrying value for the Coca-Cola shares do you see as the better quality number, the market value or the historical cost?arrow_forward
- Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio (Current Assets−Inventory)/Current Liabilities of 1.2. Your net income this year was $69.7 million. Your cash is $10.3 million, your receivables are $8.4 million, and your inventory is $5.2 million. You have current liabilities of $18.6 million. What is the maximum dividend you could pay (in cash and in stock) this year and still comply with your covenants?arrow_forwardYou have the following information for Brophy, Inc. December 31 Long-Term Debt ($ in millions) Year 2 Year 1 7% debentures, $300 million face value, due Year 11, effective rate $14.6% $ 188.6 $ 182.7 Zero coupon bonds, $500 million face value, due Year 8, effective rate 12.0% 267.9 239.2 Mortgage debt, $850 million face value, due Year 5, effective rate 8.7%, secured by corporate headquarters 834.5 833.9 Various other long-term debt 12,444.2 16,329.2 Total long-term debt $ 13,735.2 $ 17,585.0 Assume the interest for all the bonds are based on annual basis. Required: How much interest expense did the company record during Year 2 on the 7% debentures? How much of the original issue discount was amortized during Year 2? How much interest expense did the company record during Year 2 on the zero coupon bonds? Suppose that interest payments on the mortgage are made on December 31 of each year. What journal entry did the…arrow_forwardThe following information is also available: 1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1, 2023) P10,000 and land P12,000. 2. Long term investments include a P4,600 investment in fair value though other comprehensive income securities that is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be held until their December 31, 2029 maturity date. 3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costing P29,600. 4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, and treasury shares that costs P1,800. 5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bond retirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated. 6. Current liabilities include accounts payable P19,400, bonds…arrow_forward
- All of the following affect the balance of the capital account except? bank deposits. purchases of government and corporate securities. purchases of goods and services. loans. These bonds have their coupons reset every two or three years to reflect the current interest rate environment and any changes in the firm’s credit quality? Callable bonds Put bonds Treasury Inflation Protected Securities Extendable notesarrow_forwardPardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $14.7 million, and the company paid $795,000 in flotation costs. In addition, the equity issued had a flotation cost of 7.7 percent of the amount raised, whereas the debt issued had a flotation cost of 3.7 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt−equity ratio?arrow_forwardAgee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $1,300 million on July 1, 2021, at a price of $1,200 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semi-annually on June 30 and December 31.What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2021, if it uses the indirect method?arrow_forward
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