acct221 week 2 homework latest 2015

Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Beckwith would record on each interest date.

(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.

(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?

Devol Computing invested in $100,000 of face amount of 6-year bonds issued by Horton Micro Chip Company on January 1, 20X1. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Devol would record on each interest date.

(c) Prepare the journal entry that Devol would record at maturity of the bonds.

(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?

Petersen Stores invested in $100,000 of face amount of 4-year bonds issued by Erik Food Supply Company on January 1, 20X1. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Petersen would record on each interest date.

(c) Prepare the journal entry that Petersen would record at maturity of the bonds.

(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?

Davis Steel Company acquired 30% of the stock of Reginald Metals Company. Davis acquired this investment for purposes of being able to exert significant influence over the strategic plans and operations of Reginald. Following are events pertaining to this investment:

June 1 Purchased 30,000 shares of Reginald for $28 per share.

June 30 The fair value of Reginald's stock was $31 per share, and the company reported June income of $80,000.

July 15 The fair value of Reginald's stock was $30 per share, and the company declared and paid a dividend of $0.50 per share.

July 31 The fair value of Reginald's stock was $29 per share, and the company reported July income of $60,000.

(a) What method should be used to account for this investment?

(b) Prepare journal entries to account for the activity pertaining to the investment in Reginald Metals.

(c) If the investment in Reginald Metals was insufficient to allow Davis to exert significant influence, how would the accounting approach differ?

Season Corporation had excess cash on hand on January 1, 20X1, and invested in three separate bond issues on that date. Each bond investment had a maturity date of December 31, 20X6, and a maturity value of $100,000. The bond issues each pay interest on June 30 and December 31 of each year, and it is intended that these investments be held to maturity. Additional information about each investment follows:

Spring Company bonds were purchased at par and pay 7% annual interest.

Summer Company bonds were purchased for $95,168.33 and pay 6% annual interest.

Fall Company bonds were purchased for $104,831.67 and pay 8% annual interest.

(a) Prepare a table showing the accounting implications for the Spring Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(b) Prepare a table showing the accounting implications for the Summer Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, discount amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(c) Prepare a table showing the accounting implications for the Fall Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, premium amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(d) Examine the interest rates, and comment on why some bonds were available for purchase at par, while others involved a discount or premium.

Season Corporation had excess cash on hand on January 1, 20X1, and invested in three separate bond issues on that date. Each bond investment had a maturity date of December 31, 20X6, and a maturity value of $100,000. The bond issues each pay interest on June 30 and December 31 of each year, and it is intended that these investments be held to maturity. Additional information about each investment follows:

Spring Company bonds were purchased at par and pay 7% annual interest.

Summer Company bonds were purchased for $95,168.33 and pay 6% annual interest.

Fall Company bonds were purchased for $104,831.67 and pay 8% annual interest.

(a) Prepare a table showing the accounting implications for the Spring Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(b) Prepare a table showing the accounting implications for the Summer Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, discount amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(c) Prepare a table showing the accounting implications for the Fall Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, premium amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).

(d) Examine the interest rates, and comment on why some bonds were available for purchase at par, while others involved a discount or premium.

Coastal Pine Corporation acquired 40% of the stock of Delta Shipping. Coastal Pine's investment is a long-term strategic investment. Coastal Pine anticipates that its investment will permit it to elect certain board members and otherwise exercise influence over the plans and policies implemented by Delta.

Coastal Pine paid $20,000,000 for its 40% interest. The acquisition occurred on January 1, 20X4. On that date, Delta Shipping had total stockholders' equity of $50,000,000. During 20X4, Delta earned $13,000,000 and paid $3,000,000 in dividends. Both companies have December 31 year ends.

(a) Prepare Coastal's entries to account for the activity pertaining to the investment in Delta Shipping.

(b) Calculate the change in Delta's total equity during the year, and compare this to the change in Coastal's Investment in Delta account. Are they correlated, and does this help explain the term "equity" method of accounting?