In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities

P16-2A In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred.

Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hiens common stock.
Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pryce common stock.
Oct. 1 Received the semiannual interest on the Roy bonds.
Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees.

At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share.

Hint: Journalize investment transactions, prepare adjusting entry, and show statement presentation.

Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
Gain on stock sale $600
(b) Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2010.
(d) Identify the income statement accounts and give the statement classification of each account.


Click here for the solution: In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities

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

Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price

E 12-4 Various transactions relating to trading securities

Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2011 and the first week of 2012.

Required:
1. Prepare the appropriate journal entry for each transaction.
2. Indicate any amounts that Rantzow-Lear Company would report in its 2011 balance sheet and income statement as a result of this investment.


Click here for the solution: Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price

Jasmine Scents has been given two competing offers for short-term financing

E16–3 Jasmine Scents has been given two competing offers for short-term financing. Both offers are for borrowing $15,000 for 1 year. The first offer is a discount loan at 8%; the second offer is for interest to be paid at maturity at a stated interest rate of 9%. Calculate the effective annual rates for each loan and indicate which loan offers the better terms.

Click here for the solution: Jasmine Scents has been given two competing offers for short-term financing

In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities

PE-2 In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities. During the year, the following transactions occurred.

Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage fees of $1,000.
Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage fees of $500.
Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.80 per share on the NJF common stock.
Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage fees of $350.
Sept. 1 Received $2 per share cash dividend on the SEK common stock.
Oct. 1 Received the semiannual interest on the CRT bonds.
Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees.
At December 31, the fair values of the NJF and SEK common stocks were $39 and $30 per share, respectively.

Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.)
(b) Prepare the adjusting entry at December 31, 2012, to report the investments at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2012.
(d) Identify the income statement accounts and give the statement classification of each account.

Click here for the solution: In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities