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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?


    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.
    $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.
    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%.):


    I get 10.05% so I guess 10% ??

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    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