ACCT I S 100 Chapter Notes - Chapter Appendix E: Income Statement, A Question Of Balance, Financial Statement

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tanfly138

13 Oct 2016

School

UW-Madison

Department

Accounting And Info Systems

Course

ACCT I S 100

Professor

Warfield Terry

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Document Summary

Debt investments investments in government an corporate bonds: must record: 1) the acquisition, 2) the interest revenue, and 3) the sale. At acquisition, debt investments are recorded at cost (purchase price, brokerage fees, commissions: debt investments. The acquiring company earns interest revenue on the debt investments: the interest is either earned when received or earned when accrued. Stock investments investments in capital stock of a corporation. Debt investments (gain on sale of debt investments. -x: the accounting depends on the extent of the investor"s influence over the operations and financial affairs if the investee. 20%-50% significant influence equity method record investor share of investee"s net replace with stock investments . Cash income in the year it is earned: acquisition same as cost method, revenues and dividends adjust the investment account annually to show the investors equity in the investee. Dividends payments of dividend decreases investee"s net assets, so investment account is reduced.

Related Questions

Selected transactions completed by Equinox Products Inc. duringthe fiscal year ended December 31, 2016, were as follows:

Record on journal page 10:

Jan.	3	Issued 15,000 shares of $20 par common stock at $30, receivingcash.
Feb.	15	Issued 4,000 shares of $80 par preferred 5% stock at $100,receiving cash.
May	1	Issued $500,000 of 10-year, 5% bonds at 104, with interestpayable semiannually.
	16	Declared a dividend of $0.50 per share on common stock and$1.00 per share on preferred stock. On the date of record, 100,000shares of common stock were outstanding, no treasury shares wereheld, and 20,000 shares of preferred stock were outstanding.Journalize this transaction as a single entry.
	26	Paid the cash dividends declared on May 16.
Jun.	1	Purchased 7,500 shares of Solstice Corp. at $40 per share, plusa $150 brokerage commission. The investment is classified as anavailable-for-sale investment.
	8	Purchased 8,000 shares of treasury common stock at $33 pershare.
	22	Purchased 40,000 shares of Pinkberry Co. stock directly fromthe founders for $24 per share. Pinkberry has 125,000 shares issuedand outstanding. Equinox Products Inc. treated the investment as anequity method investment.
	30	Declared a $1.00 cash dividend per share on preferred stock. Onthe date of record, 20,000 shares of preferred stock wereoutstanding.
Jul.	11	Paid the cash dividends declared on Jul. 11 to the preferredstockholders.
Aug.	27	Received $27,500 dividend from Pinkberry Co. investment of Jun.22.

Record on journal page 11:

Oct.

Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directlyfrom the issuing company, at their face amount plus accruedinterest of $375. The bonds are classified as a held-to-maturitylong-term investment.

Sold, at $38 per share, 2,600 shares of treasury common stockpurchased on Jun. 8.

Received a dividend of $0.60 per share from the Solstice Corp.investment on Jun. 1.

Sold 1,000 shares of Solstice Corp. at $45, includingcommission.

Recorded the payment of semiannual interest on the bonds issuedon May 1 and the amortization of the premium for six months. Theamortization is determined using the straight-line method.

Dec.

Accrued interest for three months on the Dream Inc. bondspurchased on Oct. 1.

Pinkberry Co. recorded total earnings of $240,000. EquinoxProducts recorded equity earnings for its share of Pinkberry Co.net income.

The fair value for Solstice Corp. stock was $39.02 per share onDecember 31, 2016. The investment is adjusted to fair value, usinga valuation allowance account. Assume Valuation Allowance forAvailable-for-Sale Investments had a beginning balance of zero.

CHART OF ACCOUNTS

Equinox Products Inc.

General Ledger

	ASSETS
110	Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
131	Merchandise Inventory
132	Interest Receivable
133	Prepaid Expenses
141	Investments-Solstice Corp.
142	Investment in Pinkberry Co. Stock
143	Investment in Dream Inc. Bonds
144	Valuation Allowance for Available-for-Sale Investments
181	Store Buildings and Equipment
182	Accumulated Depreciation-Store Buildings and Equipment
183	Office Buildings and Equipment
184	Accumulated Depreciation-Office Buildings and Equipment
191	Goodwill

	LIABILITIES
211	Accounts Payable
221	Income Tax Payable
225	Cash Dividends Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Preferred Stock
312	Paid-in Capital in Excess of Par-Preferred Stock
321	Common Stock
322	Paid-in Capital in Excess of Par-Common Stock
331	Retained Earnings
341	Cash Dividends
351	Treasury Stock
352	Paid-in Capital from Sale of Treasury Stock
361	Unrealized Gain (Loss) on Available-for-Sale Investments

	REVENUE
410	Sales
611	Dividend Revenue
621	Interest Revenue
631	Income from Pinkberry Co.
641	Gain on Sale of Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
520	Sales Salaries Expense
521	Sales Commissions
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
537	Store Supplies Expense
538	Office Supplies Expense
539	Office Rent Expense
541	Income Tax Expense
551	Depreciation Expense-Store Equipment
552	Depreciation Expense-Office Equipment
591	Miscellaneous Selling Expense
592	Miscellaneous Administrative Expense
710	Interest Expense
731	Loss on Sale of Investments

1. Journalize the selected transactions. Refer to the Chart ofAccounts for exact wording of account titles. Scroll down forjournal page 11.

Journal 10

Date	Description	Post. Ref	Debit	Credit

Journal 11

Date	Description	Post. Ref	Debit	Credit

burgundysquirrel650

Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:

1	Name	Number of Shares	Total Cost	Total Fair Value
2	Tornado Inc.	830.00	$14,857.00	$16,185.00
3	Tsunami Corp.	1,230.00	31,488.00	34,809.00
4	Typhoon Corp.	2,170.00	44,268.00	43,834.00
5	Total		$90,613.00	$94,828.00

On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.

Required:

Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):

1.	The adjustment of the available-for-sale security portfolio to fair value on December 31, 2016.
2.	The June 12, 2017, purchase of Rogue Wave Inc. stock.

How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Chart of Accounts

CHART OF ACCOUNTS

Hurricane Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Rogue Wave Inc. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Rogue Wave Inc.
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Rogue Wave Inc.
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Journal

Shaded cells have feedback.

A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.

How does grading work?

PAGE 10

JOURNAL

Score: 33/51

	DATE	DESCRIPTION
1	?	?
2		?
3	?	?
4		?

Points:

6.47 / 10

Feedback

Check My Work

1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.

2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.

Final Question

Shaded cells have feedback.

B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholdersâ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to âcancel outâ over time.

Points:

5 / 5

1) On January 4, Year 1, Barber Company purchased 7,500 sharesof Convell Company for $84,500 plus a broker's fee of $1,500.Convell Company has a total of 37,500 shares of common stockoutstanding and it is presumed the Barber Company will have asignificant influence over Convell. During each of the next twoyears, Convell declared and paid cash dividends of $0.85 per share,and its net income was $97,000 and $92,000 for Year 1 and Year 2,respectively. What is the book value of Barber's investment inConvell at the end of Year 2?

A) $111,050.

B) $86,000.

C) $122,800.

D) $73,250.

E) $123,800.

2) The accountant for Crusoe Company is preparing the company'sstatement of cash flows for the fiscal year just ended. Thefollowing information is available:


Retained earningsbalance at the beginning of the year	$	128,500
Cash dividends declared for theyear		48,500
Proceeds from the sale ofequipment		83,500
Gain on the sale ofequipment		7,500
Cash dividends payable at thebeginning of the year		20,500
Cash dividends payable at theend of the year		23,000
Net income for the year		94,500

The amount of cash dividends paid during the year would be:

A) $253,000.

B) $179,000.

C) $46,000.

D) $258,500.

E) $281,000.

3) On February 15, Jewel Company buys 6,500 shares of MarceloCorp. common stock at $28.68 per share plus a brokerage fee of$475. The stock is classified as long-term available-for-salesecurities. This is the companyâs first and only investment inavailable-for-sale securities. On March 15, Marcelo declares adividend of $1.30 per share payable to stockholders of record onApril 15. Jewel received the dividend on April 15 and ultimatelysells half of the Marcelo stock on November 17 of the current yearfor $29.45 per share less a brokerage fee of $325. The journalentry to record the purchase on February 15 is:

A) Debit Long-Term Investments-AFS $186,420; credit Cash$186,420.

B) Debit Long-Term Investments-Trading $186,895; credit Cash$186,895.

C) Debit Long-Term Investments-HTM $191,425; credit cash$191,425.

D )Debit Long-Term Investments-AFS $186,895; credit Cash$186,895.

E) Debit Long-Term Investments-Trading $186,420; credit Cash$186,420.

4) Jeffreys Company reports depreciation expense of $58,000 forYear 2. Also, equipment costing $194,000 was sold for a $11,800loss in Year 2. The following selected information is available forJeffreys Company from its comparative balance sheet. Compute thecash received from the sale of the equipment.

At December 31	Year 2		Year 1
Equipment	$	700,000	$	894,000
AccumulatedDepreciation-Equipment		500,000		590,000

A) $57,800.

B) $34,200.

C) $78,200.

D) $46,000.

E) $58,000.

5) Use the following information to compute the cost of goodsmanufactured. Assume that all raw materials used were traceable tospecific units of product.


Beginning rawmaterials	$	6,700
Ending raw materials		5,200
Direct labor		13,450
Raw material purchases		8,600
Depreciation on factoryequipment		7,700
Factory repairs andmaintenance		4,500
Beginning finished goodsinventory		11,400
Ending finished goodsinventory		10,100
Beginning work in processinventory		6,900
Ending work in processinventory		7,500

A) $35,750.

B) $35,150.

C) $36,650.

D) $36,350.

E) $42,650.

6) Memphis Company anticipates total sales for April, May, andJune of $830,000, $930,000, and $980,000 respectively. Cash salesare normally 30% of total sales. Of the credit sales, 30% arecollected in the same month as the sale, 65% are collected duringthe first month after the sale, and the remaining 5% are collectedin the second month. Compute the amount of accounts receivablereported on the companyâs budgeted balance sheet for June 30.

$480,200.

$543,900.

$512,750.

$851,950.

$922,950.

7) Landmark Corp. buys $400,000 of Schroeter Company's 7%,5-year bonds payable at par value on September 1. Interest paymentsare made semiannually. Landmark plans to hold the bonds for the5-year life. When the bonds mature, the journal entry to record theproceeds will be:

A) Debit Cash $400,000; credit Interest Receivable $400,000.

B) Debit Cash $400,000; credit Long-Term Investments-HTM$400,000.

C) Debit Cash $400,000; credit Interest Revenue $400,000.

D) Debit Cash $400,000; credit Bonds Payable $400,000.

E) Debit Long-Term Investments-HTM $400,000; credit Cash$400,000.

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ACCT I S 100 Chapter Notes - Chapter Appendix E: Income Statement, A Question Of Balance, Financial Statement

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