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    Reclassification of securites and accounting treatment

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    Some questions I am confused on. Please explain? I have some notes underneath some.

    1) On January 1, 2011, Nana Company paid $100,000 for 8,600 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $56,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $53 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011?

    $410,800.
    $395,800.
    $455,800.
    $380,800.

    2) Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $192,000 on May 5, 2010, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2010. Goofy reclassified this investment as trading securities in December of 2011 when the market value had risen to $160,000. What effect on 2011 income should be reported by Goofy for the Crazy Co. shares?

    $42,000 net gain.
    $0.
    $32,000 net loss.
    $74,000 net loss.

    ** I believe it is a $32K net loss but I'm not sure when the loss is realized if at all when the re-class happens. My book does not answer this question.

    3) Zwick Company bought 29,000 shares of the voting common stock of Handy Corporation in January 2011. In December, Handy announced $209,200 net income for 2011 and declared and paid a cash dividend of $6 per share on the 203,500 shares of outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2011 would be:

    $ 0.
    $29,812.
    $174,000.
    None of these is correct.

    4) On September 1, 2011, Hiker Shoes issued a $114,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 10%. Hiker's effective interest rate on this loan is (Do not round intermediate calculations. Round your final answer to two decimal places, e.g., .1234 as 12.34%.):

    10.64%.
    10.00%.
    10.63%.
    10.71%.

    I get 10.05% so I guess 10% ??

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    https://brainmass.com/business/accounting/reclassification-of-securites-and-accounting-treatment-396817

    Solution Summary

    -classified as trading security what amount is shown in Balance sheet
    -available for sale securities classified as trading securities
    -treatment of dividend received from associated company
    -effective interest rate on non-interest bearing note

    $2.19

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