Explore BrainMass

Explore BrainMass

    Journal entries for bonds and stocks investments

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Issel Corporation had the following transactions pertaining to debt investments

    Jan 1 Purchased 60 8%, 1,000 Hollis Co. bonds for $60,000 cash plus brokerage fees of $900. Interest is payable semiannually on July 1 and January 1.

    July 1 Received semiannual interest on Hollis Co bonds.

    July 1 Sold 30 Hollis Co bonds for $34,000 less $500 brokerage fees.

    (a) Journalize the transactions
    (b) Prepare the adjusting entry for the accrual of interest at December 31.

    Satazar Company had the following pertaining to stock investments.

    Feb 1 Purchased 800 shares of Hippo common stock (2%) for $8,000 cash plus brokerage fees of $200.

    July 1 Received cash dividends of $1 per share on Hippo common stock.

    Sept 1 Sold 300 shares of Hippo common stock for $4,400 less brokerage fees of $100.

    Dec 1 Received cash dividends of $1 per share on Hippo common stock

    (a) Journalize the transactions
    (b) Explain how dividend revenues and the gain (loss) on sale of bonds should be reported in the income statement

    Hermes Inc had the following transactions pertaining to investments in common stock.

    Jan 1 Purchased 2,00 shares of Lanier Corporation common stock (5%) for $140,000 cash plus $2,100 broker's commission

    July 1 received a cash dividend of $3 per share

    Dec 1 Sold 500 shares of Lanier Corporation common stock for $37,000 cash less $800 broker's commission

    Dec 31 received a cash dividend of $3 per share

    Journalize the transactions

    Strawder Farms is a grower of hybrid seed corn for DeKalb Genetics Corporation. I has had two exceptionally good years and has elected to invest its excess funds in bonds. The following selected transactions relate to bonds acquired as an investment by Strawder Farms whose fiscal year ends on December 31

    2005
    Jan 1 Purchased at par $800,000 of Lesley Corporation 10-year 9% bonds dated January 1, 2005 directly from the issuing corporation.

    July 1 received the semiannual interest on the Lesley bonds.

    Dec 31 Accrual of interest at year-end on the Lesley bonds

    (Assume that all intervening transactions and adjustments have been properly recorded and the number of bonds owned has not changed from December 31, 2005 to December 31, 2007)

    2008
    Jan 1 received the semiannual interest on the Lesley bonds

    Jan 1 Sold $400,000 Lesley bonds at 114. The broker deducted $7,000 for commissions and fees on sale.

    July 1 received the semiannual interest on the Lesley bonds.

    Dec 31 Accrual of interest at the end-year on the Lesley bonds

    (a) Journalize the listed transactions for the years 2005 and 2008
    (b) Assume that the fair value of the bonds at December 31, 2005, was$770,000. These bonds are classified as available for sale securities. Prepare the adjusting entry to record these bonds at fair value
    (c) Based on the analysis in part (b) show the balance sheet presentations of the bonds and interest available at December 31,2005. Assume the investments are considered long-term. Indicate where any unrealized gain/loss is reported in the financial statements.

    In January 2005, the management of Ralley 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 600 shares of IBT common stock for $40,000 plus brokerage fees of $800

    Mar 1 Purchased 500 shares of IMA common stock for $15,000 plus brokerage fees of $300.

    Apr 10 Purchased 60, $1,000 12% CRE bonds for $60,000, plus $1,200 brokerage fees. Interest is payable semiannually on Apr 1 and October 1.

    July 1 Received a cash dividend of $0.06 per share on the IBT common stock

    Aug 1 Sold 300 shares of IBT common stock at $70 per share less brokerage fees of $350.

    Sept 1 Received a $1 pr share cash dividend on the IMA common stock

    Oct 1 Received the semiannual interest on the CRE bonds

    Oct 1 Sold the CRE bonds for $65,000 less $1,000 brkerage fees

    At December 31 the fair value of the IBT common stock was $66 per share. The fair value of the IMA common stock was $30 per share.

    (a) journalize the transactions and post to the accounts Debit Investments and Stock Investments (T-accounts)
    (b) Prepare the adjusting entry at December 31,2005 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, 2005
    (d) Identify the income statement accounts and give the statement classification of each account.

    On December 31, 2005 Carlin Associates owned the following securities held as long term investments.

    Common Stock Shares Cost
    Ace Co 2,000 $50,000
    Burns Co 6,000 36,000
    Cruz Co 1,200 24,000

    On this date the total and fair value of the securities was equal to its cost. The securities are not held for influence or control over the investors. In 2006 the following transactions occurred:

    July 1 Received $1 per share semiannual cash dividend on Burns Co. common stock

    Aug 1 Received $0.050 per share cash dividend on Ace Co common stock

    Sept 1 Sold 2,000 shares of Burns Co common stock for cash at $7 per share less brokerage fees of $300

    Oct 1 Sold 600 shares of Ace Co common stock for cash at $28 per share less brokerage fees of $600

    Nov 1 Received $1 per share cash dividend on Cruz Co common stock

    Dec 15 Received $0.50 per share cash dividend on Ace Co common stock

    Dec 31 Received $1 per share semiannual cash dividend on Burns Co common stock.

    At December 31, the fair values per share of the common stock were Ace Co $24, Burns Co $6 and Cruz Co $19

    (a) Journalize the 2006 transactions and post to the account Stock Investments (T-account).
    (b) Prepare the adjusting entry at December 31, 2006 to show the securities at fair value. The stock should be classified as available for sale securities.
    (c) Show the balance sheet presentation of the investments at December 31, 2006. At this date Carlin Associates has common stock $2,000,000 and retained earnings $1,200,000

    © BrainMass Inc. brainmass.com June 3, 2020, 8:05 pm ad1c9bdddf
    https://brainmass.com/business/the-accounting-cycle/journal-entries-for-bonds-and-stocks-investments-123108

    Attachments

    Solution Preview

    Issel Corporation had the following transactions pertaining to debt investments

    Jan 1 Purchased 60 8%, 1,000 Hollis Co. bonds for $60,000 cash plus brokerage fees of $900. Interest is payable semiannually on July 1 and January 1.

    July 1 Received semiannual interest on Hollis Co bonds.

    July 1 Sold 30 Hollis Co bonds for $34,000 less $500 brokerage fees.

    (a) Journalize the transactions
    (b) Prepare the adjusting entry for the accrual of interest at December 31.

    Jan. 1 Investment in bond 60,000
    Brokerage Fees 900
    Cash 60,900

    Please note that the price of the bond to be recorded in the account will include the price and the brokerage fees.

    July 1 Cash 2,400
    Interest Revenues 2,400
    (60 x 1,000 x 8% x 1/2 = 2,400)

    July 1 Cash 33,500
    Brokerage Fees 500
    Investment in bond 30,450
    Gain on the sale of bond 3,550

    Dec. 31 Bond interest receivable 1,200
    Interest Revenues 1,200
    (30 x 1,000 x 8% x 1/2 = 1,200)

    Satazar Company had the following pertaining to stock investments.

    Feb 1 Purchased 800 shares of Hippo common stock (2%) for $8,000 cash plus brokerage fees of $200.

    July 1 Received cash dividends of $1 per share on Hippo common stock.

    Sept 1 Sold 300 shares of Hippo common stock for $4,400 less brokerage fees of $100.

    Dec 1 Received cash dividends of $1 per share on Hippo common stock

    (a) Journalize the transactions
    (b) Explain how dividend revenues and the gain (loss) on sale of bonds should be reported in the income statement

    Feb. 1 Investment in stock 8,000
    Brokerage fees 200
    Cash 8,200

    July 1 Cash 800
    Dividend Revenues 800

    Sept 1 Cash 4,300
    Brokerage fees 100
    Investment in stock 3,075
    Gain on sale of stock 1,325
    (300 x 10.25 = 3,075)

    Dec 1 Cash 500
    Dividend Revenues 500
    (800 - 300 = 500 x $1 = $500)

    The dividend revenues and the gain (loss) on sale of bonds or stocks should be reported in the income statement under other income or expenses section.

    Hermes Inc had the following transactions pertaining to investments in common stock.

    Jan 1 Purchased 2,000 shares of Lanier Corporation common stock (5%) for $140,000 cash plus $2,100 broker's commission

    July 1 received a cash dividend of $3 per share

    Dec 1 Sold 500 shares of Lanier Corporation common stock for $37,000 cash less $800 broker's commission

    Dec 31 received a cash dividend of $3 per share

    Journalize the transactions

    Jan. 1 Investment in stock 140,000
    Brokerage fees 2,100
    Cash 142,100
    (142,100/2,000 shares = $71.05 per share)

    July 1 Cash 6,000
    Dividend Revenues 6,000
    (2,000 x $3 = $6,000)

    Dec 1 Cash 36,200
    Brokerage fees 800
    Investment in stock 35,525
    Gain on sale of stock 1,475
    (500 x 71.05 = 35,525)

    Dec 31 Cash 4,500
    Dividend Revenues 4,500
    (2,000 - 500 = 1,500 x $3 = $4,500)

    Strawder Farms is a grower of hybrid seed corn for DeKalb Genetics Corporation. It has had two exceptionally good years and has elected to invest its excess funds in bonds. The following selected transactions relate to bonds acquired as an investment by Strawder Farms whose fiscal year ends on December 31, 2005

    Jan 1 Purchased at ...

    Solution Summary

    This solution is comprised of a journal entries and solutions as required for each problem in text file.

    $2.19

    ADVERTISEMENT