P 12-1 Securities held-to-maturity; bond investment; effective interest
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?
Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
Showing posts with label long. Show all posts
Showing posts with label long. Show all posts
Wednesday, October 14, 2015
Friday, October 9, 2015
Connecticut Inc. had the following long-term receivable account balances at December 31, 2006
P7-10 (Comprehensive Receivables Problem) Connecticut Inc. had the following long-term receivable account balances at December 31, 2006.
Note receivable from sale of division $1,800,000
Note receivable from officer 400,000
Transactions during 2007 and other information relating to Connecticut’s long-term receivables were as follows.
1. The $1,800,000 note receivable is dated May 1, 2006, bears interest at 9%, and represents the balance of the consideration received from the sale of Connecticut’s electronics division to New York Company. Principal payments of $600,000 plus appropriate interest are due on May 1, 2007, 2008, and 2009. The first principal and interest payment was made on May 1, 2007. Collection of the note installments is reasonably assured.
2. The $400,000 note receivable is dated December 31, 2006, bears interest at 8%, and is due on December 31, 2009. The note is due from Sean May, president of Connecticut Inc. and is collateralized by 10,000 shares of Connecticut’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2007. The quoted market price of Connecticut’s common stock was $45 per share on December 31, 2007.
3. On April 1, 2007, Connecticut sold a patent to Pennsylvania Company in exchange for a $200,000 zero-interest-bearing note due on April 1, 2009. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2007, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2007, and the amortization for the year ended December 31, 2007, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.
4. On July 1, 2007, Connecticut sold a parcel of land to Harrisburg Company for $200,000 under an installment sale contract. Harrisburg made a $60,000 cash down payment on July 1, 2007, and signed a 4-year 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2008, through July 1, 2011. The land could have been sold at an established cash price of $200,000. The cost of the land to Connecticut was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
Instructions
(a) Prepare the long-term receivables section of Connecticut’s balance sheet at December 31, 2007.
(b) Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Connecticut’s balance sheet at December 31, 2007.
(c) Prepare a schedule showing interest revenue from the long-term receivables that would appear on Connecticut’s income statement for the year ended December 31, 2007.
Click here for the solution: Connecticut Inc. had the following long-term receivable account balances at December 31, 2006
Note receivable from sale of division $1,800,000
Note receivable from officer 400,000
Transactions during 2007 and other information relating to Connecticut’s long-term receivables were as follows.
1. The $1,800,000 note receivable is dated May 1, 2006, bears interest at 9%, and represents the balance of the consideration received from the sale of Connecticut’s electronics division to New York Company. Principal payments of $600,000 plus appropriate interest are due on May 1, 2007, 2008, and 2009. The first principal and interest payment was made on May 1, 2007. Collection of the note installments is reasonably assured.
2. The $400,000 note receivable is dated December 31, 2006, bears interest at 8%, and is due on December 31, 2009. The note is due from Sean May, president of Connecticut Inc. and is collateralized by 10,000 shares of Connecticut’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2007. The quoted market price of Connecticut’s common stock was $45 per share on December 31, 2007.
3. On April 1, 2007, Connecticut sold a patent to Pennsylvania Company in exchange for a $200,000 zero-interest-bearing note due on April 1, 2009. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2007, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2007, and the amortization for the year ended December 31, 2007, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.
4. On July 1, 2007, Connecticut sold a parcel of land to Harrisburg Company for $200,000 under an installment sale contract. Harrisburg made a $60,000 cash down payment on July 1, 2007, and signed a 4-year 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2008, through July 1, 2011. The land could have been sold at an established cash price of $200,000. The cost of the land to Connecticut was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
Instructions
(a) Prepare the long-term receivables section of Connecticut’s balance sheet at December 31, 2007.
(b) Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Connecticut’s balance sheet at December 31, 2007.
(c) Prepare a schedule showing interest revenue from the long-term receivables that would appear on Connecticut’s income statement for the year ended December 31, 2007.
Click here for the solution: Connecticut Inc. had the following long-term receivable account balances at December 31, 2006
Sunday, September 27, 2015
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance. Total retained earnings is $250,000 and total paid in capital is $500,000.
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Sunday, September 20, 2015
(a) What are long-term liabilities? Give two examples. (b) What is a bond?
(a) What are long-term liabilities? Give two examples.
(b) What is a bond?
Click here for the solution: (a) What are long-term liabilities? Give two examples. (b) What is a bond?
(b) What is a bond?
Click here for the solution: (a) What are long-term liabilities? Give two examples. (b) What is a bond?
Sunday, September 6, 2015
In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1
In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2011, was $2,100,000. The income tax rate is 40%.
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:
The market price of the common stock averaged $32 per share during 2011.
On July 12, 2009, Dow issued $800,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend).
Required:
Compute Dow's basic and diluted earnings per share for the year ended December 31, 2011.
Click here for the solution: In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:
The market price of the common stock averaged $32 per share during 2011.
On July 12, 2009, Dow issued $800,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend).
Required:
Compute Dow's basic and diluted earnings per share for the year ended December 31, 2011.
Click here for the solution: In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1
Sunday, August 23, 2015
For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation's tax liability for 2010.
Click here for the solution: For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
Click here for the solution: For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
Saturday, August 22, 2015
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
E 12-19 Fair value option; held-to-maturity investments
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 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, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 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, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
Tuesday, August 18, 2015
Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.
Click here for the solution: Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.
Click here for the solution: Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
Saturday, August 15, 2015
Braddock Inc. had the following long-term receivable account balances at December 31, 2009
P7-10 (Comprehensive Receivables Problem) Braddock Inc. had the following long-term receivable account balances at December 31, 2009.
Note receivable from sale of division $1,500,000
Note receivable from officer 400,000
Transactions during 2010 and other information relating to Braddock's long-term receivables were as follows.
1. The $1,500,000 note receivable is dated May 1, 2009, bears interest at 9%, and represents the balance of the consideration received from the sale of Braddock's electronics division to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2010, 2011, and 2012. The first principal and interest payment was made on May 1, 2010. Collection of the note installments is reasonably assured.
2. The $400,000 note receivable is dated December 31, 2009, bears interest at 8%, and is due on December 31, 2012. The note is due from Sean May, president of Braddock Inc. and is collateralized by 10,000 shares of Braddock's common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2010. The quoted market price of Braddock's common stock was $45 per share on December 31, 2010.
3. On April 1, 2010, Braddock sold a patent to Pennsylvania Company in exchange for a $100,000 zero-interest-bearing note due on April 1, 2012. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2010, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2010, and the amortization for the year ended December 31, 2010, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.
4. On July 1, 2010, Braddock sold a parcel of land to Splinter Company for $200,000 under an installment sale contract. Splinter made a $60,000 cash down payment on July 1, 2010, and signed a 4-year 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2011, through July 1, 2014. The land could have been sold at an established cash price of $200,000. The cost of the land to Braddock was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
Instructions
(a) Prepare the long-term receivables section of Braddock's balance sheet at December 31, 2010.
(b) Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Braddock's balance sheet at December 31, 2010.
(c) Prepare a schedule showing interest revenue from the long-term receivables that would appear on Braddock's income statement for the year ended December 31, 2010.
Click here for the solution: Braddock Inc. had the following long-term receivable account balances at December 31, 2009
Note receivable from sale of division $1,500,000
Note receivable from officer 400,000
Transactions during 2010 and other information relating to Braddock's long-term receivables were as follows.
1. The $1,500,000 note receivable is dated May 1, 2009, bears interest at 9%, and represents the balance of the consideration received from the sale of Braddock's electronics division to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2010, 2011, and 2012. The first principal and interest payment was made on May 1, 2010. Collection of the note installments is reasonably assured.
2. The $400,000 note receivable is dated December 31, 2009, bears interest at 8%, and is due on December 31, 2012. The note is due from Sean May, president of Braddock Inc. and is collateralized by 10,000 shares of Braddock's common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2010. The quoted market price of Braddock's common stock was $45 per share on December 31, 2010.
3. On April 1, 2010, Braddock sold a patent to Pennsylvania Company in exchange for a $100,000 zero-interest-bearing note due on April 1, 2012. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2010, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2010, and the amortization for the year ended December 31, 2010, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.
4. On July 1, 2010, Braddock sold a parcel of land to Splinter Company for $200,000 under an installment sale contract. Splinter made a $60,000 cash down payment on July 1, 2010, and signed a 4-year 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2011, through July 1, 2014. The land could have been sold at an established cash price of $200,000. The cost of the land to Braddock was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
Instructions
(a) Prepare the long-term receivables section of Braddock's balance sheet at December 31, 2010.
(b) Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Braddock's balance sheet at December 31, 2010.
(c) Prepare a schedule showing interest revenue from the long-term receivables that would appear on Braddock's income statement for the year ended December 31, 2010.
Click here for the solution: Braddock Inc. had the following long-term receivable account balances at December 31, 2009
Sunday, July 19, 2015
Green Co. has signed a long-contract to build a new sports arena
Green Co. has signed a long-contract to build a new sports arena. The total revenue related to the contract is $520 million. Estimated costs for the building the arena are $180 million in the first year and $130 million in both the second and third year. The costs cannot be reasonably estimated. How much revenue should Green Co. report in their first year under iGAAP.
Click here for the solution: Green Co. has signed a long-contract to build a new sports arena
Click here for the solution: Green Co. has signed a long-contract to build a new sports arena
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