BUSINESS

1) A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on February 1 and August 1. The amount of interest accrued on December 31 (the company’s year-end) would be

A. 250

B. 500

C. 1,250

D. 2,500

E. 3,000

 

2)  Hamilton Company owns 88,200 of Hennie Company’s 180,000 outstanding shares of common stock. Hennie Company pays $30,000 in total cash dividends to its shareholders. Hamilton’s entry to record this transaction should include a

 

A.Credit to Long-Term investments for $14,700

B.Credit to Dividend Revenue for $30,000

C.Debit to Dividend Revenue for $14,700

D.Debit to Interest Revenue for $14,700

E.Credit to Long-Term Investments for $30,000

 

3) On April 18, Riley Co. made a short-term investment in 300 common shares of XLT Co. The purchase price is $42 per share and the broker’s fee is $250. The intent is to actively manage these shares for profit. On May 30, Riley Co. receives $1 per share from XLT in dividends.

Prepare the April 18 and May 30 journal entries to record these transactions

 

 

 

4) Journ Co. purchased short-term investments in available-for-sale securities at a cost of $50,000 on November 25, 2013. At December 31, 2013, these securities had a fair value of $47,000. This is the first and only time the company has purchased such securities

Prepare the December 31, 2013, year-end adjusting entry for the securities’ portfolio

 

 

 

5) On February 1, 2013, Garzon purchased 6% bonds issued by PBS Utilities at a cost of $40,000, which is their par value. The bonds pay interest semiannually on July 31 and January 31. For 2013, prepare entries to record Garzon’s July 31 receipt of interest and its December 31 year-end interest accrual. (Do not round your intermediate calculations.)

Record the interest revenue on July 31, 2013

Record the interest accrued on the bonds as of December 31, 2013.

 

 

 

6) On May 20, 2013, Montero Co. paid $1,000,000 to acquire 40% of ORD Corp.’s outstanding stock. Also assume that ORD Corp. paid a $100,000 dividend on November 1, 2013. Prepare the journal entry to record the dividend on November 1, 2013.

 

 

 

 

7) On May 20, 2013, Montero Co. paid $1,000,000 to acquire 25,000 common shares (10%) of ORD Corp. as a long-term investment. On August 5, 2014, Montero sold one-half of these shares for $625,000.

 

What valuation method should be used to account for this stock investment?

 

 

Equity method
Fair value method

 

Prepare entries to record both the acquisition and the sale of these shares.

On May 20, 2013, Montero Co. paid $1,000,000 to acquire 25,000 common shares (10%) of ORD Corp. as a long-term investment.

On August 5, 2014, Montero sold one-half of these shares for $625,000.

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