FINANCIAL ACCOUNTING FUNDAMENTALS
7th Edition
ISBN: 9781260827767
Author: Wild
Publisher: McGraw Hil
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter C, Problem 2PSA
1.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and
To prepare:
1.
Expert Solution
Explanation of Solution
Journal entries are prepared as follows:
| Date | Account title and explanation | Debit ($) | Credit ($) |
| Year 1 | |||
| Jan. 20 | Debt investment − AFS | 20,500 | |
| Cash | 20,500 | ||
| (to record the purchase of bond) | |||
| Feb. 9 | Debt investment − AFS | 55,440 | |
| Cash | 55,440 | ||
| (to record the purchase of bond) | |||
| June 12 | Debt investment - AFS | 40,500 | |
| Cash | 40,500 | ||
| (to record the purchase of bond) | |||
| Dec. 31 | Fair value adjustment − AFS | 3,910 | |
| Unrealized gain − equity | 3,910 | ||
| (to record the fair value adjustment) | |||
| Year 2 | |||
| Apr. 15 | Cash | 23,500 | |
| Gain on sale of debt investment | 3,000 | ||
| Debt investment - AFS | 20,500 | ||
| (to record the sale of bonds on cash) | |||
| July 5 | Cash | 35,850 | |
| Loss on sale of debt investment | 4,650 | ||
| Debt investment - AFS | 40,500 | ||
| (to record the sale of bonds on cash) | |||
| July 22 | Debt investment − AFS | 13,500 | |
| Cash | 13,500 | ||
| (to record the purchase of notes) | |||
| Aug. 19 | Debt investment − AFS | 15,300 | |
| Cash | 15,300 | ||
| (to record the purchase of bonds) | |||
| Dec. 31 | Fair value adjustment − AFS | 1,175 | |
| Unrealized gain − equity | 1,175 | ||
| (to record the fair value adjustment) | |||
| Year 3 | |||
| Feb. 27 | Debt investment − AFS | 160,800 | |
| Cash | 160,800 | ||
| (to record the purchase of bond) | |||
| June 21 | Cash | 57,600 | |
| Gain on sale of debt investment | 2,160 | ||
| Debt investment − AFS | 55,440 | ||
| (to record the sale of bonds on cash) | |||
| June 30 | Debt investment − AFS | 50,400 | |
| Cash | 50,400 | ||
| (to record the purchase of bonds) | |||
| Aug. 3 | Cash | 9,750 | |
| Loss on sale of debt investment | 3,750 | ||
| Debt investment − AFS | 13,500 | ||
| (to record the sale of bonds) | |||
| Nov. 1 | Cash | 20,475 | |
| Gain on sale of debt investment | 5,175 | ||
| Debt investment − AFS | 15,300 | ||
| (to record the sale of bonds) | |||
| Dec. 31 | Unrealized gain − equity | 3,085 | |
| Fair value adjustment - AFS | 3,085 | ||
| (to record the fair value adjustment) |
Working notes:
Year 1
| Company | Cost ($) | Fair value ($) | Difference ($) |
| J J | 20,500 | 21,500 | 1,000 |
| S | 55,440 | 52,500 | (2,940) |
| M | 40,500 | 46,350 | 5,850 |
| Total | 116,440 | 120,350 | 3,910 |
Year 2
| Company | Cost ($) | Fair value ($) | Difference ($) |
| K | 15,300 | 17,325 | 2,025 |
| S | 13,500 | 12,000 | (1,500) |
| S | 55,440 | 60,000 | 4,560 |
| Total | 84,240 | 89,325 | 5,085 |
| Fair value adjustment account: | |||
| Required balance | $5,085 | ||
| Existence balance | ($3,910) | ||
| Required change | $1,175 | ||
Year 3
| Company | Cost ($) | Fair value ($) | Difference ($) |
| B & D | 50,400 | 54,600 | 4,200 |
| M | 160,800 | 158,600 | (2,200) |
| Total | 211,200 | 213,200 | 2,000 |
| Fair value adjustment account: | |||
| Required balance | $5,085 | ||
| Existence balance | ($2,000) | ||
| Required change | $3,085 | ||
2.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: Table showing (a) total cost (b) total fair value adjustment (c) total fair value of portfolio.
2.
Expert Solution
Explanation of Solution
The table is prepared as follows:
| Requirement | Debt investment | Year 1 ($) | Year 2 ($) | Year 3 ($) |
| (a) | Long term AFS securities (cost) | 116,440 | 84,240 | 211,200 |
| (b) | Fair value adjustment − AFS | 3,910 | 5,085 | 2,000 |
| (c) | Long term AFS security (fair value) | 120,350 | 89,325 | 213,200 |
3.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare:Table showing (a) realized gains or losses and (b) unrealized gains or losses.
3.
Expert Solution
Explanation of Solution
The table showing realized and unrealized gain or losses are prepared as follows:
| Particular | Year 1 ($) | Year 2 ($) | Year 3 ($) |
| Realized gain or (losses) | |||
| Sale of J J | 3,000 | ||
| Sale of M | (4,650) | ||
| Sale of S | 2,160 | ||
| Sale of S L | (3,750) | ||
| Sale of K | 5,175 | ||
| Total realized gain or (losses) | 0 | (1,650) | 3,585 |
| Unrealized gains or (losses) | 3,910 | 5,085 | 2,000 |
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Chapter C Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS
Ch. C - Prob. 1MCQCh. C - Prob. 2MCQCh. C - Prob. 3MCQCh. C - Prob. 4MCQCh. C - Prob. 5MCQCh. C - Prob. 1DQCh. C - Prob. 2DQCh. C - Prob. 3DQCh. C - Prob. 4DQCh. C - Prob. 5DQ
Ch. C - Prob. 6DQCh. C - Prob. 7DQCh. C - Prob. 8DQCh. C - Prob. 9DQCh. C - Prob. 10DQCh. C - Prob. 11DQCh. C - Prob. 12DQCh. C - Prob. 13DQCh. C - Prob. 14DQCh. C - Prob. 1QSCh. C - Prob. 2QSCh. C - Prob. 3QSCh. C - Prob. 4QSCh. C - Prob. 5QSCh. C - Prob. 6QSCh. C - Prob. 7QSCh. C - Prob. 8QSCh. C - Prob. 9QSCh. C - Prob. 10QSCh. C - Prob. 11QSCh. C - Prob. 12QSCh. C - Prob. 13QSCh. C - Prob. 14QSCh. C - Prob. 15QSCh. C - Prob. 16QSCh. C - Prob. 17QSCh. C - Prob. 18QSCh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - Prob. 6ECh. C - Prob. 7ECh. C - Prob. 8ECh. C - Prob. 9ECh. C - Prob. 10ECh. C - Transactions in held-to-maturity, trading, and...Ch. C - Prob. 12ECh. C - Prob. 13ECh. C - Prob. 14ECh. C - Prob. 15ECh. C - Prob. 16ECh. C - Prob. 17ECh. C - Prob. 1PSACh. C - Prob. 2PSACh. C - Prob. 3PSACh. C - Prob. 4PSACh. C - Prob. 5PSACh. C - Prob. 6PSACh. C - Prob. 1PSBCh. C - Prob. 2PSBCh. C - Prob. 3PSBCh. C - Prob. 4PSBCh. C - Prob. 5PSBCh. C - Prob. 6PSBCh. C - Prob. 1SPCh. C - Prob. 1GLPCh. C - Prob. 2GLPCh. C - Prob. 1AACh. C - Prob. 2AACh. C - Prob. 3AACh. C - Prob. 1BTNCh. C - Prob. 2BTNCh. C - Prob. 5BTN
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.arrow_forwardWilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.arrow_forwardMASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Corporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Corporate Financial Accounting
Accounting
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial instruments products; Author: fi-compass;https://www.youtube.com/watch?v=gvxozM3TUIg;License: Standard Youtube License