1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
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.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To Journalize: The investment made by Company FM on January 1, 2018.
2.
To Journalize: The semiannual interest received by Company FM on June 30, 2018.
3.
To Journalize: The semiannual interest received by Company FM on December 31, 2018.
4.
To Calculate: The amount of investment to be recorded in the balance sheet of Company FM on December 31, 2018.
5.
To Explain: The effect of investment by Company FM on December 31, 2018, in the statement of cash flows.
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Intermediate Accounting
- € 17.4 (L01) (Debt Investments) Assume the same information as in E17.3 (in the picture)except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year end is as follows. 2019 $ 534.200 2020 $ 515,000 2021 $ 513,000 2022 $ 517,000 2023 $ 500,000 Instructions a. Prepare the journal entry at the date of the bond purchase. b. Prepare the journal entries to record the interest received and recognition of fair value for 2019. c. Prepare the journal entry to record the recognition of fair value for 2020. d. Discuss how the response to (c) will be different assuming Roosevelt has a strategy of held-for-collection and selling.arrow_forward[This is a variation of E 12–2 focusing on available-for-sale 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.3. At what amount will Mills report its investment in the December 31, 2018, balance sheet? Why?4. Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell theinvestment on…arrow_forward23. The following information pertains to Long Inc.'s investment in marketable debt securities: A marketable available-for-sale debt security costing $40,000, written down to $25,000 in Year 4, had a $30,000 fair value on December 31, Year 5. On December 31, Year 5, Long reclassified a debt security with a $100,000 carrying cost and a $90,000 fair value from the trading category to the available-for-sale category. All changes in the value of the available-for-sale securities are noncredit related and considered temporary. What is the net effect of the above items on Long's available-for-sale debt securities valuation allowance for unrealized losses as of December 31, Year 5? A. No effect. B. $5,000 decrease. C. $10,000 decrease. D. $15,000 decreasearrow_forward
- 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.arrow_forwardExercise 12-11 (Algo) Available-for-sale securities [LO12-1, 12-4] Mills Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2021. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 5% for bonds of similar risk and maturity. Mills paid $320 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2021, was $300 million. Required:1. & 2. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate.3. At what amount will Mills report its investment in the December 31, 2021, balance sheet?4. Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2022, for $330 million. Prepare the journal…arrow_forwardE17.3 (LO 1) (Entries for Held-to-Maturity Securities) On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category. Instructions a. Prepare the journal entry at the date of the bond purchase. b. Prepare a bond amortization schedule. c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020. d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021. E17.4 (LO 1) (Entries for Available-for-Sale Securities) Assume the same information as in E17.3 except that the securities are classified as available-for-sale. The fair value of the…arrow_forward
- E16.7 (LO 1, 2) (Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry or entries required to record each transaction. 1. Coyle SA issued €10,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company's investment banker determines that they would have been sold at 95. 2. Lambert AG issued €10,000,000 par value 10% bonds at 98. One share warrant was issued with each €100 par value bond. The net present value of the bonds without the warrants was €9,600,000. 3. Sepracor AG called its convertible debt in 2022. Assume the following related to the transaction. The 11%, €10,000,000 par value bonds were converted into 1,000,000 shares of €1 par value ordinary shares on July 1, 2022. The carrying amount of the debt on July 1 was €9,700,000. The Share Premium-Conversion Equity account had a balance of €200,000, and the company paid an additional €75,000 to the bondholders to induce conversion of all…arrow_forwardAdjusting AFS Debt Securities to Fair Value A portfolio of investments of available-for-sale securities held by Dow Inc. is as follows. Dec. 31, 2020 Cost Fair Value Eastern Corp. bonds $204,000 $217,600 Western Corp. bonds 340,000 348,500 Total $544,000 $566,100 Dec. 31, 2021 Cost Fair Value Eastern Corp. bonds $204,000 $238,000 Western Corp. bonds 340,000 323,000 Total $544,000 $561,000 The Fair Value Adjustment account had a $0 balance on January 1, 2020. No sales or purchases took place in the available-for-sale investment portfolio in 2020 and 2021. a. Record the adjusting entry on December 31, 2020, to adjust the debt investments to fair value. Date Account Name Dr. Cr. Dec. 31, 2020 b. Record the adjusting entry on December 31, 2021, to adjust the debt investments to fair value. . Date Account Name Dr. Cr. Dec. 31, 2021 c. Indicate how the adjustment to fair value in (b) would be…arrow_forwardQ1)Fuzzy Monkey Technologies purchased as a long-term investment $80 million of 8% quoted bonds, dated January 1, on January 1, 2012. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2012, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2012. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2012 (at the effective rate). 3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2012 (at the effective rate).arrow_forward
- Question: Akers Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in trading debt securities: SecurityPar ValueAmortized Cost12/31/18 Fair ValueIvan Company 5% bonds, maturing on Dec. 31, 2028$10,000$8,400$9,400Taylor Company 6% bonds, maturing on Dec. 31, 2023$40,000$43,200$41,800Totals$51,600$51,200During 2019, the following transactions occurred: Mar. 31Purchased Hill Company 8% bonds with a face value of $20,000 for $20,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31.Mar. 31Sold the Taylor Company investment for $42,000 plus accrued interest. The Taylor bonds pay interest on December 31 of each year.June 30Received the semiannual interest on the Hill Company bonds.Dec. 31Received the annual interest on the Ivan Company bonds and the semiannual interest on the Hill Company bonds.The December 31 closing market prices were as follows: Ivan Company bonds, $9,000;…arrow_forwardMf2. 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.)arrow_forwardProblem 12.9 (Algo) Securities held-to-maturity; trading securities and equity investments [LO12-1, 12-2, 12-3, 12-5] Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2021 and the first month of 2022. The only securities held by Amalgamated at October 1, 2021 were $32 million of 10% bonds of Kansas Abstractors, Inc. purchased on May 1, 2021 at face value and held in Amalgamated's trading securities portfolio. The company's fiscal year ends on December 31. 2021 Oct. 18 Purchased 2 million shares of Millwork Ventures Company common stock for $55 million. Millwork has a total of 32 million shares issued. 31 Received semiannual interest of $1.6 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT