BUSINESS

17.       If bonds with a face value of $150,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to

a.   Bonds Payable for $150,000.

b.   Bonds Payable for $135,000.

c.   Discount on Bonds Payable for $15,000.

d.   Bonds Payable equal to the market price of the bonds on the date of conversion.

 

18.       Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company’s investment in Lynn will increase by

a.   $25,000.

b.   $40,000.

c.   $45,000.

d.   $35,000.

 

 

 

19.       Which of the following transactions does not affect cash during a period?

a.   Write-off of an uncollectible account

b.   Collection of an accounts receivable

c.   Sale of treasury stock

d.   Exercise of the call option on bonds payable

 

 

 

 

20.       If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

a.   is not required since the share prices will likely rebound in the long run.

b.   will show a debit to an unrealized loss account that is deducted in the stockholders’ equity section of the balance sheet.

c.   will show a debit to an expense account.

d.   will show a credit to a contra-asset account that appears in the stockholders’ equity section of the balance sheet.

 

 

 

 

 

 

 

PROBLEM 1

James (investor) Corporation acquires 45% of the common shares of Heck (investee) Company for $200,000 on January 1, 2010.  For 2010, Heck reports net income of $70,000 and paid dividends of $20,000.

Instructions

(a)   Prepare the entries for these transactions that James Corporation would make in the space provided below.

Compute the balance in the stock investment account of James Corporation

 

 

(a)

Date Account Debit Credit
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     

 

 

 

(b)

 

 

 

 

 

 

 

 

 

PROBLEM 2

On January 1, Porter Corporation issued $500,000, 8%, 5-year bonds at 105. Interest is payable semiannually on July 1 and January 1.

 

 

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Payment of interest on July 1, assuming no previous accrual of interest.

(c)   Accrual of interest on December 31.

 

 

 

Date Account Debit Credit
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     

 

 

 

 

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