ACCT 302 Connect Homework 12 Investments Assignment solutions complete answers

ACCT 302 Connect Homework 12 Investments Assignment solutions complete answers 

 

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Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2021, as a long-term investment. 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. Lance Brothers paid $600,000 for the investment in bonds and will receive interest semiannually on June 30 and December 31.  


Prepare the journal entries (a) to record Lance Brothers’ investment in the bonds on July 1, 2021, and (b) to record interest on December 31, 2021, at the effective (market) rate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. 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 value of $873,000.
 
What pretax amounts did S&L include in its 2021 and 2022 net income as a result of this investment (ignoring interest)? (Enter all amounts as positive values.)

 

S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. 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 value of $873,000.

Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Tanner-UNF Corporation acquired as a long-term investment $200 million of 6.0% 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $170.0 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 $180.0 million.
 
Required:
1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate.
3. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?
4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $150.0 million. Prepare the journal entry to record the sale.

 

Loreal-American Corporation purchased several marketable securities during 2021. At December 31, 2021, the company had the investments in bonds listed below. None was held at the last reporting date, December 31, 2020, and all are considered securities available-for-sale.
 

 
Cost
Fair Value
Unrealized Holding
Gain (Loss)
Short term:
 
 
 
 
 
 
 
 
 
 
 
 
Blair, Inc.
$
498,000
 
 
$
396,000
 
 
$
(102,000
)
 
ANC Corporation
 
459,000
 
 
 
498,000
 
 
 
39,000
 
 
Totals
$
957,000
 
 
$
894,000
 
 
$
(63,000
)
 
Long term:
 
 
 
 
 
 
 
 
 
 
 
 
Drake Corporation
$
498,000
 
 
$
569,000
 
 
$
71,000
 
 
Aaron Industries
 
711,000
 
 
 
669,000
 
 
 
(42,000
)
 
Totals
$
1,209,000
 
 
$
1,238,000
 
 
$
29,000
 
 
 
 
Required:
1. Prepare appropriate adjusting entries at December 31, 2021.
2. What amount would be reported in the income statement at December 31, 2021, as a result of the adjusting entry?

 

As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 560,000 shares for $640,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $360,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $681,000.

Required:
1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.
 

Mar.
 
31
 
Acquired 8% Distribution Transformers Corporation bonds costing $520,000 at face value.
Sep.
 
1
 
Acquired $1,260,000 of American Instruments' 10% bonds at face value.
Sep.
 
30
 
Received semiannual interest payment on the Distribution Transformers bonds.
Oct.
 
2
 
Sold the Distribution Transformers bonds for $550,000.
Nov.
 
1
 
Purchased $2,000,000 of M&D Corporation 6% bonds at face value.
Dec.
 
31
 
Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are
 

 
 
 
 
American Instruments bonds
$
1,212,000
 
M&D Corporation bonds
$
2,072,000
 
 
 

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

 

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.
 

Mar.
 
31
 
Acquired 6% Distribution Transformers Corporation bonds costing $460,000 at face value.
Sep.
 
1
 
Acquired $990,000 of American Instruments’ 8% bonds at face value.
Sep.
 
30
 
Received semiannual interest payment on the Distribution Transformers bonds.
Oct.
 
2
 
Sold the Distribution Transformers bonds for $491,000.
Nov.
 
1
 
Purchased $1,440,000 of M&D Corporation 4% bonds at face value.
Dec.
 
31
 
Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:
 

 
 
 
 
American Instruments bonds
$
934,000
 
M&D Corporation bonds
$
1,526,000
 
 
 

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

 

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 $66 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 $62 million. Millwork has a total of 66 million shares issued.
 
 
31
 
Received semiannual interest of $3.3 million from the Kansas Abstractors bonds.
Nov.
 
1
 
Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2031. Semiannual interest is payable April 30 and October 31.
 
 
1
 
Sold the Kansas Abstractors bonds for $64 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously.
Dec.
 
1
 
Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2031. Semiannual interest is payable May 31 and November 30.
 
 
20
 
Purchased U. S. Treasury bonds for $7.4 million as trading securities, hoping to earn profits on short-term differences in prices.
 
 
21
 
Purchased 4 million shares of NXS Corporation's 52 million shares of common stock for $52 million, planning to hold these shares until market conditions encourage their sale.
 
 
23
 
Sold the Treasury bonds for $7.9 million.
 
 
29
 
Received cash dividends of $5 million from the Millwork Ventures Company shares of common stock.
 
 
31
 
Recorded any necessary adjusting entries relating to the investments. The market price of the Millwork Ventures Company common stock was $28.50 per share and $14.00 per share for the NXS Corporation common stock. The fair values of the bond investments were $58.8 million for Household Plastics Corporation and $16.4 million for Holistic Entertainment Enterprises.
 

2022
 
 
 
 
Jan.
 
7
 
Sold the NXS Corporation common stock shares for $49 million.

Required:
Prepare the appropriate journal entry for each transaction or event. Use one summary entry on December 31 to adjust the portfolio of equity investments to fair value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

 

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2021, for $410 million.

At the date of purchase, the book value of Vancouver's net assets was $780 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities.

The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2021.

Vancouver reported net income of $150 million for the year ended December 31, 2021. Vancouver paid a cash dividend of $20 million.

Required:
1. Prepare all appropriate journal entries related to the investment during 2021.
2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2021?
3. What amount should Northwest report in its balance sheet as its investment in Vancouver?
4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?