GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
9th Edition
ISBN: 9781260089042
Author: J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 12.6BE
To determine
Available-for-sale (AFS) securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.
To determine: The pre-tax amounts included in 2018 and 2019 net income
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Brief Exercise 12-5 (Static) Available-for-sale securities (LO12-4)
S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola
bonds at par for $875,000 and sold the bonds on January 3, 2022, for $880,000. At December 31, the bonds had a fair volue of
$873,000, and S&L has the intent and ability to hold the investment until fair value recovers.
Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022, including
recognition of any unrealized gains in 2022 prior to sale and reclassification of amounts out of OCI. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
Exercise 12-12 (Algo) Available-for-sale securities; financial statement effects [LO12-1, 12-
4]
Colah Company purchased $2,300,000 of Jackson, Incorporated, 6% bonds at par on July 1, 2024, with Interest
paid semi-annually. Colah determined that it should account for the bonds as an available-for-sale Investment. At
December 31, 2024, the Jackson bonds had a fair value of $2,630,000. Colah sold the Jackson bonds on July 1,
2025 for $2,070,000.
Required:
1. Prepare Colah's Journal entries for the following transactions:
a. The purchase of the Jackson bonds on July 1.
b. Interest revenue for the last half of 2024.
c. Any year-end 2024 adjusting entries.
d. Interest revenue for the first half of 2025.
e. Any entries necessary upon sale of the Jackson bonds on July 1, 2025, Including updating the fair-value
adjustment, recording any reclassification adjustment, and recording the sale.
2. Complete the following table to show the effect of the Jackson bonds on Colah's net income, other…
Exercise 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…
Chapter 12 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
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. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
Ch. 12 - Under IFRS No. 9, which reporting categories are...Ch. 12 - Prob. 12.12QCh. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17QCh. 12 - Prob. 12.18QCh. 12 - Prob. 12.19QCh. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - (Based on Appendix 12A) Northwest Carburetor...Ch. 12 - Prob. 12.25QCh. 12 - Prob. 12.26QCh. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28QCh. 12 - Explain how the CECL model (introduced in ASU No....Ch. 12 - Prob. 12.30QCh. 12 - Prob. 12.1BECh. 12 - Prob. 12.2BECh. 12 - Trading securities LO12-3 For the Coca-Cola bonds...Ch. 12 - Available -for-sale securities LO12-4 SL...Ch. 12 - Available -for-sale securities LO12-4 For the...Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.10BECh. 12 - Equity investments and dividends LO12-5 Turner...Ch. 12 - Prob. 12.12BECh. 12 - Prob. 12.13BECh. 12 - Equity method investments LO12-6, LO12-9 Kim...Ch. 12 - Change in principle; change to the equity method ...Ch. 12 - Fair value option; equity method investments ...Ch. 12 - Prob. 12.17BECh. 12 - Impairments (AFS Credit Loss Model) (Appendix 12B)...Ch. 12 - Prob. 12.19BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.1ECh. 12 - Prob. 12.2ECh. 12 - Securities held-to-maturity LO12-1 FFT...Ch. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Trading securities LO12-1 [This is a variation of...Ch. 12 - Various transactions relating to trading...Ch. 12 - Prob. 12.8ECh. 12 - Securities available-for-sale; adjusting entries ...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Classification of securities; adjusting entries ...Ch. 12 - Prob. 12.14ECh. 12 - Equity investments; fair value through net income ...Ch. 12 - Equity investments; fair value through net income ...Ch. 12 - Prob. 12.17ECh. 12 - Equity investments; fair value through net income ...Ch. 12 - Investment securities and equity method...Ch. 12 - Equity method; purchase; investee income;...Ch. 12 - Error corrections; equity method investment ...Ch. 12 - Prob. 12.22ECh. 12 - Prob. 12.23ECh. 12 - Prob. 12.24ECh. 12 - Prob. 12.25ECh. 12 - Prob. 12.26ECh. 12 - Prob. 12.27ECh. 12 - Prob. 12.28ECh. 12 - Prob. 12.29ECh. 12 - Prob. 12.30ECh. 12 - Prob. 12.31ECh. 12 - Prob. 12.32ECh. 12 - Accounting for impairments under IFRS (Appendix...Ch. 12 - Prob. 12.1PCh. 12 - Prob. 12.2PCh. 12 - Securities available-for-sale; bond investment;...Ch. 12 - Prob. 12.4PCh. 12 - Various transactions related to trading securities...Ch. 12 - Various transactions related to securities...Ch. 12 - Prob. 12.7PCh. 12 - Various transactions relating to trading...Ch. 12 - Securities held-to-maturity; securities available...Ch. 12 - Investment securities and equity method...Ch. 12 - Prob. 12.11PCh. 12 - Prob. 12.12PCh. 12 - Prob. 12.13PCh. 12 - Equity method LO12-6, LO12-7 On January 2, 2018,...Ch. 12 - Prob. 12.15PCh. 12 - Prob. 12.16PCh. 12 - Accounting for debt and equity investments ...Ch. 12 - Prob. 12.18PCh. 12 - Real World Case 121 Intels investments LO12-4 The...Ch. 12 - Prob. 12.2BYPCh. 12 - Prob. 12.4BYPCh. 12 - Prob. 12.6BYPCh. 12 - Real World Case 127 Comprehensive income Microsoft...Ch. 12 - Continuing Cases Target Case LO12-4, LO12-6...
Knowledge Booster
Similar questions
- Brief Exercise 12-2 (Algo) Trading securities; financial statement effects [LO12-3] S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. Assume that on December 27, 2024, S&L purchased Coca-Cola bonds at par for $920,000 and sold the bonds on January 3, 2025, for $922,000. At December 31, the bonds had a fair value of $916,500. What pretax amounts did S&L include in its 2024 and 2025 net income as a result of this investment (ignoring interest)? Note: Enter all amounts as positive values. 2024 2025 Pretax Amountarrow_forwardRecording and Reporting AFS Securities On December 31, 2020, Banff Company held an investment in Glacier Inc. bonds with an original cost of $9,200. The investment was classified as an available-for-sale security, had a fair value of $8,600 on December 31, 2020, and was the only investment in the available-for-sale security portfolio in 2020. In 2021, Banff sold the investment in Glacier Inc. bonds for $8,000. On December 31, 2021, assume that Banff Company has an $3,200 net unrealized holding gain on other available-for-sale securities purchased during 2021. a. Prepare the adjusting entry on December 31, 2020, to record the unrealized holding gain or loss on the Glacier Inc. bond investment. Date Account Name Dr. Cr. Dec. 31, 2020 b. Prepare the adjusting entry on December 31, 2021, to record the unrealized holding gain or loss on Banff’s available-for-sale portfolio. Date Account Name Dr. Cr. Dec. 31, 2021 c. Indicate the…arrow_forwardProblem 12-3 (Algo) Securities available-for-sale; bond investment; effective interest; financial statement effects [LO12-1, 12-4] Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $60 million of 6% bonds, dated January 1, on Janua 1, 2024. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $46 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, 2024, was $50 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4-6. At what amount will Fuzzy Monkey report its investment in the December 31, 2024, balance sheet? 4-b. Prepare the entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by…arrow_forward
- Exercise 12-3 (Algo) Securities held-to-maturity [LO12-1] FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T's investment activities during the last two months of 2021. At November 1, FF&T held $3O million of 25-year, 8% bonds of Convenience, Inc., purchased May 1, 2021, at face value. Management has the positive intent and ability to hold the bonds until maturity. FF&T's fiscal year ends on December 31. 1 Received semiannual interest of $1.2 million from the Convenience, Inc., bonds. 1 Purchased 10% bonds of Facsimile Enterprises at their $24 million face value, to be held until they mature in 2024. Semiannual interest is payable May 31 and November 30. 31 Purchased U.S. Treasury bills to be held until they mature in two months for $9.5 million. 31 Recorded any necessary adjusting entry(s) relating to the investments. Nov. Dec. The fair values of the…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_forwardExercise 12-2 (Algo) Securities held-to-maturity; bond investment; effective interest, premium [LO12-1] Mills Corporation acquired as a long-term investment $280 million of 6% bonds, dated July 1, on July 1, 2021. 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 $330.0 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 $320.0 million. Required: 1.8 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…arrow_forward
- ● Assume Sunset Company purchased this entire bond issue sold y Omar, i.e., 7% of $1,000,000 bonds, at $913,540 on January 1,2024. Market yield was 8% and interest is paid semiannually on June 30 and December 31. Sunset is holding the bond investment as trading securities. The fair value of the bonds on December 31, 2024 is $920,000. 1. At what amount will Sunset report this investment in the December 31, 2024 balance sheet? 2. What is the amount related to the bond investment that Sunset will report in its income statement for the year ended December 31, 2024? (Ignore income taxes.) 3. What is the amount related to the bond investment that Sunset will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category of activity in which the cash flow is in. activities activitiesarrow_forwardI only need part B Part AOn January 1, 2023, Baker Company purchased, as an investment, 5% bonds, having a maturity value of$150,000, for $138,400. The bonds provide the bondholders with a 7% yield. They are dated January 1,2023, and mature January 1, 2033, with interest receivable June 30 and December 31 of each year. BakerCompany uses the effective-interest method to allocate unamortized discount or premium. The bonds areclassified in the held-to-maturity category.a) Prepare the schedule of interest revenue and bond amortization from January 1, 2023 through December31, 2025.January 1, 2023June 30, 2023December 31, 2023June 30, 2024December 31, 2024June 30, 2025December 31, 2025b) Prepare the journal entry at the date of the bond purchase.c) Prepare the journal entry to record the interest received and the amortization for June 30, 2023.d) Prepare the journal entry to record the interest received and the amortization for December 31, 2025. Part B Assume the same information as…arrow_forwardProblem 12 - 1 (Algo) Securities held - to - maturity; bond investment; effective interest; financial statement effects [LO12-1, 12-2] Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment S 200 million of 10% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $178 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, 2024, was $190 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the…arrow_forward
- Exercise 12-26 (Algo) Fair value option; available-for-sale investments [L012-2, 12-3, 12-8] Colah Company purchased $3,000,000 of Jackson, Inc., 5% bonds at their face amount on July 1, 2021, with interest paid semi- annually. The bonds mature in 20 years but Cola planned to keep them for less than 3 years, and classified them as available for sale investments. When the bonds were acquired Cola decided to elect the fair value option for accounting for its investment. At December 31, 2021, the Jackson bonds had a fair value of $3,400,000. Cola sold the Jackson bonds on July 1. 2022 for $2.700.000. a. The purchase of the Jackson bonds on July 1. b. Interest revenue for the last half of 2021. c. Any year-end 2021 adjusting entries. d. Interest revenue for the first half of 2022. e. Any entry or entries necessary upon sale of the Jackson bonds on July 1, 2022. Required: 1. Prepare Colah's journal entries for above transactions. 2. Complete the following table to show the effect of the…arrow_forwardHi! Wanna know what's the answer for this question On July 1, 2019, Catto Company purchased P500,00 face value Doggo Company 8% bonds for P455,000 plus accrued interest to yield 10%. the bonds were designated as at fair value through profit or loss. The bonds mature on January 1, 2023 and pay interest annually on January 1. On December 31, 2019, the bonds had a market value of 472,500. On February 14, 2020. Catto sold the bonds for 450,000 plus accrued interest. What is the interest income reported by Catto for the year 2019?arrow_forwardThis 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.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning