Question 1

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

(a)Prepare the journal entry at the date of the bond purchase.

(b)Prepare the journal entry to record the interest received for 2013.

(c)Prepare the journal entry to record the interest received for 2014.

Question 2

On January 1, 2013, Hi and Lois Company purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10.00% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.2013$320,500 $2,016.00 $310,000.00

2014$309,000 $2,017.00 $300,000.00

2015$308,000

(a)Prepare the journal entry at the date of the bond purchase.

(b)Prepare the journal entries to record the interest received and recognition of fair value for 2013.(c)Prepare the journal entry to record the recognition of fair value for 2014.

Question 3

On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.

31-Dec-13

Investments (Trading)CostFair ValueUnrealized Gain (Loss)

Clemson Corp. stock$20,000 $19,000 $(1,000)

Colorado Co. stock10,0009,000          (1,000)

Buffaloes Co. stock20,00020,600              600

Total of portfolio      $50,000 $48,600   (1,400)

Previous fair value adjustment balance0

Fair value adjustment—Cr.        $(1,400)

During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500.

(a)Prepare the adjusting journal entry needed on December 31, 2013.(b)Prepare the journal entry to record the sale of the Colorado Company stock during 2014.(c)Prepare the adjusting journal entry needed on December 31, 2014.

Question 4

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Use the information in the following T-account for the investment in Sub to answer the following questions Investment in Sub Co. 1,000,000  110,000   44,000

(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?

(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?

(c) What was Sub Co.’s total net income for the year?

(d) What was Sub Co.’s total dividends for the year?

Question 5

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014.

(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. 

(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. 

(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?