Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy. Held-to-maturity security : The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities. Trading securities : These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices. Fair value : Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer. Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

Question

Mf2. On January 1, 2022. Sarasota Company purchased 12% bonds having a maturity value of $430,000 for $462,600.36. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2022, and mature January 1, 2027, with interest receivable December 31 of each year. Sarasota elected the fair value option for this held-for-collection investment. Prepare any entry necessary at December 31, 2022, assuming the fair value of the bonds is $464,400. (Round answers to 2 decimal places, e.g. 5,275.25. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)

Answer 1

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Mf2. On January 1, 2022. Sarasota Company purchased 12% bonds having a maturity value of $430,000 for $462,600.36. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2022, and mature January 1, 2027, with interest receivable December 31 of each year. Sarasota elected the fair value option for this held-for-collection investment. Prepare any entry necessary at December 31, 2022, assuming the fair value of the bonds is $464,400. (Round answers to 2 decimal places, e.g. 5,275.25. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)

This is a variation of E 12–1 focusing on available-for-sale securities.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200million for the bonds. The company will receive interest semiannually on June 30 and December 31. Companymanagement has classified the bonds as available-for-sale investments. As a result of changing market conditions,the fair value of the bonds at December 31, 2018, was $210 million.Required:1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018.2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018, at the effective (market)rate.

This is a variation of E 12–2 focusing on trading securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018.Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate(yield) was 4% for bonds of similar risk and maturity. Mills paid $280 million for the bonds. The company willreceive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $270 million.Required:1. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018.2. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate.

Answer 2

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 3

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 4

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 5

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 6

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

Answer 7

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

Answer 8

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

Answer 9

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

Answer 10

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

Answer 11

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

Answer 12

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

Answer 13

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

Answer 14

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

Answer 15

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

Answer 16

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 17

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 18

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Answer 29

Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5Q Ch. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

To journalize: The fair value changes to be recorded in the books of Company T.

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Chapter 12 Solutions