Perez Company began operations in 2009. Since then, it has reportedthe following gains and losses for its investments in tradingsecurities on the income statement:
2009 2010 2011
Gains (losses) from sale of trading securities $ 15,000 $(20,000) $14,000
Unrealized holding losses on valuation of trading securities(25,000) â (30,000)
Unrealized holding gain on valuation of trading securities â 10,000â
At January 1, 2012, Perez owned the following tradingsecurities:
Cost
BKD Common (15,000 shares) $450,000
LRF Preferred (2,000 shares) 210,000
Drake Convertible bonds (100 bonds) 115,000
During 2012, the following events occurred:
1. Sold 5,000 shares of BKD for $170,000.
2. Acquired 1,000 shares of Horton Common for $40 per share.Brokerage commissions totaled $1,000.
At 12/31/12, the fair values for Perez's trading securitieswere:
BKD Common, $28 per share
LRF Preferred, $110 per share
Drake Bonds, $1,020 per bond
Horton Common, $42 per share
Instructions
(a) Prepare a schedule which shows the balance in the SecuritiesFair Value Adjustment (Trading) at December 31, 2011 (after theadjusting entry for 2011 is made).
(b) Prepare a schedule which shows the aggregate cost and fairvalues for Perez's trading securities portfolio at 12/31/12.
(c) Prepare the necessary adjusting entry based upon your analysisin (b) above.
2009 2010 2011
Gains (losses) from sale of trading securities $ 15,000 $(20,000) $14,000
Unrealized holding losses on valuation of trading securities(25,000) â (30,000)
Unrealized holding gain on valuation of trading securities â 10,000â
At January 1, 2012, Perez owned the following tradingsecurities:
Cost
BKD Common (15,000 shares) $450,000
LRF Preferred (2,000 shares) 210,000
Drake Convertible bonds (100 bonds) 115,000
During 2012, the following events occurred:
1. Sold 5,000 shares of BKD for $170,000.
2. Acquired 1,000 shares of Horton Common for $40 per share.Brokerage commissions totaled $1,000.
At 12/31/12, the fair values for Perez's trading securitieswere:
BKD Common, $28 per share
LRF Preferred, $110 per share
Drake Bonds, $1,020 per bond
Horton Common, $42 per share
Instructions
(a) Prepare a schedule which shows the balance in the SecuritiesFair Value Adjustment (Trading) at December 31, 2011 (after theadjusting entry for 2011 is made).
(b) Prepare a schedule which shows the aggregate cost and fairvalues for Perez's trading securities portfolio at 12/31/12.
(c) Prepare the necessary adjusting entry based upon your analysisin (b) above.
Related questions
QUESTION 1
Which of the following is not an equity security?
a. Common stock
b.Warrants
c. Call options
d. Redeemable preferred stock with a mandatory redemptionperiod
QUESTION 2
On January 1, 2005, N Inc. purchased 10-year bonds issued by BCompany. The bonds have a face value of $500,000 and pay interestannually at 8 percent on each December 31. N purchased the bondsfor $550,000. N�s accounting year ends on December 31. N�smanagement has chosen to treat the bonds purchased as anavailable-for-sale security. There are no other securities in theavailable-for-sale portfolio. Assume that on December 31, 2005, thefair market value of the bonds was $510,000. The company uses thestraight-line method of amortization. What is the amount ofinterest income to be reported on the 2005 incomestatement?
a.$35,000
b. $40,000
c. $44,000
d. $45,000
QUESTION 3
At December 31, 2005 and 2006, C Corp. had outstanding 4,000shares of $100 par value, 6 percent cumulative preferred stock and20,000 shares of $10 par value common stock. At December 31, 2005,dividends in arrears on the preferred stock were $12,000. Cashdividends declared in 2006 totaled $44,000. Of the $44,000, whatamounts were payable on each class of stock?
Preferred Stock | Common Stock |
a. $44,000 | $0 |
b. $36,000 | $8,000 |
c. $32,000 | $12,000 |
d. $24,000 | $20,000 |
QUESTION 4
A liability for a cash dividend exists atthe
a. end of each year
b. date of declaration
c. date of record
d. date of payment
QUESTION 5
Coe Corp. issued 20,000 shares of $5 par common stock at $10 pershare. On December 31, 2005, Coe's retained earnings were $300,000.In March 2006, Coe reacquired 5,000 shares of its common stock at$20 per share. In June 2006, Coe sold 1,000 of these shares to itscorporate officers for $25 per share. Coe uses the cost method toaccount for its treasury stock. Net income for the year endedDecember 31, 2006, was $60,000. At December 31, 2006, what amountshould Coe report as retained earnings?
a. $360,000
b. $365,000
c.$375,000
d. $380,000
QUESTION 6
William Corp. issued 10,000 shares of its $1 par value commonstock for a building. The building was listed for sale at $500,000.William�s common stock is currently selling for $45 per share.William Corp. should record the buildingat
a.$10,000
b. $440,000
c. $450,000
d. $500,000
QUESTION 7
Assume that S Company makes sales of $400,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $100,000 of collectionsoccurred during 2004, $150,000 occurred in 2005, and the remainderwill occur in 2006. Assuming a tax rate of 40 percent, what is theamount of the entry into the Deferred Tax account at the end of theyear 2004?
a. $40,000
b.$60,000
c.$120,000
d. $160,000
QUESTION 8
The Company purchases an asset on January 1, 2005, for $200,000.The straight-line method of depreciation is used for book purposes,resulting in depreciation of $50,000 per year. An acceleratedmethod is used for tax purposes, resulting in depreciation of$80,000, $60,000, $40,000, and $20,000 for the years 2005, 2006,2007, and 2008, respectively. Assume that the tax rate is 40percent for all years and that depreciation is the only temporarydifference between book and tax purposes. The 2005 journal entrywould include a
a. debit to Deferred Tax Liability of$12,000
b. debit to Deferred Tax Liability of $4,000
c. credit to Deferred Tax Asset of$4,000
d. credit to Deferred Tax Liability of $12,000
QUESTION 9
Which of the following has no effect on comprehensiveincome?
a. Unrealized gains and losses on held-to-maturityinvestments
b. Unrealized gains and losses on available-for-saleinvestments
c. Unrealized gains and losses on tradingsecurities
d. Realized gains and losses on available-for-sale securitiesthat were held in previous periods
QUESTION 10
Assume that Grandzol Company believes that $120,000 of a$600,000 deduction will not be utilized in future periods and thatthe tax rate is 40 percent for all periods. What is the amount ofthe valuation allowance?
a.$48,000
b. $120,000
c. $192,000
d. $240,000
QUESTION 11
Information regarding Silly Co.�s portfolio ofavailable-for-sale securities is as follows:
a. Aggregate cost as of 12/31/05 $170,000
b. Unrealized gains as of 12/31/05 4,000
c. Unrealized losses as of 12/31/05 26,000
d. Net realized gains during 2005 30,000
At December 31, 2004, Silly reported an unrealized holding lossfrom available-for-sale securities of $1,500 on the statement ofstockholders� equity. Assuming the application of SFAS No. 115,�Accounting for Certain Investments in Debt and Equity Securities,�what amount should Silly report on its December 31, 2005, balancesheet as an unrealized holding loss?
a.$26,000
b. $22,000
c.$20,500
d. $0
QUESTION 12
Treasury stock is a(n)
a. asset account
b. contra-asset account
c. equityaccount
d. contra-equity account
QUESTION 13
On March 1, 2004, LeoCorp. was formed by issuing 100,000 shares of $1 par value commonstock at $5 per share and 20,000 shares of $100 par value preferredstock at $101 per share. If Leo earned $35,000 in its first year ofoperations, total stockholders� equity at year end would be
a. $335,000
b. $735,000
c. $2,135,000.
d. $2,555,000
QUESTION 14
Interest received from available-for-sale debt securities shouldbe reportedas
a. an unrealized holdinggain�income
b. an unrealized holding gain�equity
c. other revenue on the income statement
d. a reclassification adjustment on the statement ofcomprehensive income
QUESTION 15
During 2005, Bob Co. issued 5,000 shares of $100 par convertiblepreferred stock for $110 per share. One share of preferred stockcan be converted into three shares of Bob's $25 par common stock atthe option of the preferred shareholder. On December 31, 2006, whenthe market value of the common stock was $40 per share, all of thepreferred stock was converted. What amount should Bob credit toCommon Stock and to Additional Paid-in Capital as a result of theconversion?
Common Stock | Additional Paid-in-Capital |
a. $375,000 | $175,000 |
b. $375,000 | $225,000 |
c. $500,000 | $50,000 |
d. $600,000 | $0 |
QUESTION 16
If a company reissued at $20 per share 100 shares of treasurystock that it had previously acquired for $28 per share and therewasn�t any Paid-in Capital from Treasury Stock, it would debit
a. Loss on Sale of Treasury Stock for $800
b. Paid-in Capital from Common Stock for $800
c. Retained Earnings for $800
d. Treasury Stock for $800
QUESTION 17
B Corp. issued 200,000 shares of common stock when it beganoperations in 2004 and issued an additional 100,000 shares in 2005.B also issued preferred stock convertible into 100,000 shares ofcommon stock. In 2006, B purchased 75,000 shares of its commonstock and held it in the treasury. At December 31, 2006, how manyshares of B's common stock were outstanding?
a. 400,000
b.325,000
c.300,000
d. 225,000
QUESTION 18
Assume that Bad Company makes sales of $200,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $60,000 of collectionsoccurred during 2004 and the remainder will occur in 2005. What isthe amount of the temporary difference at the end of the year2004?
a.$200,000
b.$140,000
c.$60,000
d. $0
QUESTION 19
Rent income received in advance that is included for taxpurposes when received, but recorded for book purposes when earnedresults in
a. expense items and deductions being taken for tax purposesbefore bookpurposes
b. expense items and deductions being recorded for book purposesbefore tax purposes
c. purposes income being included for tax purposes beforebook
d. income being recorded for book purposes before taxpurposes.
QUESTION 20
Debt securities that are classified as available-for-salesecurities are reported on the balance sheet at
a. fair value
b. historical cost
c. amortized cost
d. lower of amortized cost or fair value
QUESTION 21
Dividends are a(n)
a.expense
b. distribution to owners
c. asset
d. increase in equity
QUESTION 22
Which of the following does not use the Adjustment andUnrealized Holding Gain (Loss) accounts?
a. Held-to-maturitysecurities
b. Tradingsecurities
c. Available-for-salesecurities
d. Both held-to-maturity and trading securities
QUESTION 23
Other comprehensive income includes changes in the fair valueof
a. held-to-maturity securities
b. tradingsecurities
c. available-for-sale securities
d. investments accounted for under the equity method
Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, 2016. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:
Record these transactions on page 10:
| 2016 | ||
|---|---|---|
| Jan. | 18 | Purchased 9,000 shares of Malmo Inc. as an available-for-sale investment at $40 per share, including the brokerage commission. |
| July | 22 | A cash dividend of $3.00 per share was received on the Malmo stock. |
| Oct. | 5 | Sold 500 shares of Malmo Inc. stock at $58.00 per share, less a brokerage commission of $100. |
| Dec. | 18 | Received a regular cash dividend of $3.00 per share on Malmo Inc. stock. |
| 31 | Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $36.00 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment. |
Record these transactions on page 11:
| 2017 | ||
|---|---|---|
| Jan. | 25 | Purchased an influential interest in Helsi Co. for $800,000 by purchasing 75,000 shares directly from the estate of the founder of Helsi. There are 250,000 shares of Helsi Co. stock outstanding. |
| July | 16 | Received a cash dividend of $3.00 per share on Malmo Inc. stock. |
| Dec. | 16 | Received a cash dividend of $3.00 per share plus an extra dividend of $0.20 per share on Malmo Inc. stock. |
| 31 | Received $38,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $170,000 in 2017. Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co. | |
| 31 | Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $44 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $36 to $44 per share. |
| Required: | |
| A. | Journalize the entries to record the preceding transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. |
| B. | Prepare the investment-related asset and stockholdersâ equity balance sheet presentation for Glacier Products Inc. on December 31, 2017, assuming the Retained Earnings balance on December 31, 2017, is $700,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. âLessâ or âPlusâ will automatically appear if it is required. For those boxes in which you must enter subtractive or negative numbers use a minus sign. |
| CHART OF ACCOUNTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Glacier Products Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General Ledger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Amount Descriptions | |
|---|---|
| Available-for-sale investments (at cost) | |
| Available-for-sale investments (at fair value) | |
| Net income | |
| Net loss | |
| Other comprehensive income (loss) | |
| Other income (loss) | |
| Trading investments (at cost) | |
| Trading investments (at fair value) |
Journalize the entries to record these transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
PAGE 10PAGE 11
JOURNAL
| DATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT | |
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| 11 |
Prepare the investment-related asset and stockholdersâ equity balance sheet presentation for Glacier Products Inc. on December 31, 2017, assuming the Retained Earnings balance on December 31, 2017, is $700,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. âLessâ or âPlusâ will automatically appear if it is required. For those boxes in which you must enter subtractive or negative numbers use a minus sign.
| GLACIER PRODUCTS, INC. |
| Balance Sheet (selected items) |
| December 31, 2017 |
| 1 | Current assets: | ||
| 2 | |||
| 3 | |||
| 4 | |||
| 5 | |||
| 6 | Investments: | ||
| 7 | |||
| 8 | |||
| 9 | Stockholdersâ equity: | ||
| 10 | |||
| 11 |
