please show work, thank you! Online Corp. decided to invest its excess cash in d
ID: 2609953 • Letter: P
Question
please show work, thank you!
Online Corp. decided to invest its excess cash in debt and equity securities. The following securities were purchased on January 2, 2017:
Bonds issued by the Jata Corp. The bonds have a face value of $100,000, a 10 year life, and a stated interest rate of 5%. Interest is paid annually on December 31st. The bonds were purchased at $108,111 to yield 4% and Online classifies the debt investment as Available for Sale.
8,000 shares of Micro Corp.’s common stock at $60 per share. The securities are accounted for using the fair value method.
200,000 shares of Quazno Corp. at $25 per share. The shares make up 40% of the outstanding shares for Quazno, so are accounted for using the equity method. During 2017, Quazno reported net income of $600,000.
Additional Information:
Fair values as of December 31, 2017: Jata bonds $106,000
Micro stock $65 per share
Quazno stock $31 per share
In addition to the interest paid on the Jata bonds, the following dividends were paid on the equities during 2017: Micro $.40 per share
Quazno $.30 per share
REQUIRED
1. Prepare all entries related to the securities for 2017, including purchase, dividends and/or interest and any necessary adjusting entries. (14 points)
2. Ignoring income taxes, compute the amount to be included in 2017 net income and in 2017 other comprehensive related to Online’s investments. (4 points)
3. Compute the amount at which Quazno would be carried in the December 31, 2017 balance sheet. (2 points)
Check Figures: Net Income $287,524; Comprehensive Income ($1,435)
Explanation / Answer
(To record the change in fair value of Micro Corp.)
10 Unrealized loss on available for sale securities 2,111
Investment in bonds-available for sale 2,111
11 Investment in bonds-available for sale 676
Unrealized interest revenue 676
1. Journal Entries 1 Investment in bond-available for sale $108,111 Cash $108,111 (To record purchase of bonds at premium) 2 Investment in Long term Equity secutities 480,000 Cash 480,000 (To record purchase of shares of Micro corp. ) 3 Investment in Long term Equity Securities 5,000,000 Cash 5,000,000 (To record purchase of shares of Quazno) 4 Investment in Long Term Equity Securities 240,000 Investment Revenue 240,000 (To record income distribution of Quazno) ($600000 x 40%) 5 Cash 4,324 Interest Revenue 4,324 (To record interest received on bond) 7 Cash 3,200 Investment Revenue 3,200 (To record Dividend received from Micro Corp.) 8 Cash 60,000 Investment in Long Term Equity Securities 60,000 (To record dividend received from Quazno) 9 Investment in Long term Equity Securities 40,000 Unrealized gain on securities 40,000(To record the change in fair value of Micro Corp.)
10 Unrealized loss on available for sale securities 2,111
Investment in bonds-available for sale 2,111
11 Investment in bonds-available for sale 676
Unrealized interest revenue 676
2. Amount to be included in 2017 Net Income Investment Revenue 240,000 Interest Revenue 4,324 Investment Revenue 3,200 Unrealized gain on securities 40,000 Total 287,524 Other Comprehensive related to Online's Investment Unrealised loss on available for sale securities (2,111) ($106000-108111) Unrealized interest revenue 676 (5000-4324) Comprehensive Income (1,435) 3. Quazno would be carried at $5,240,000 ($5,000,000 + 240,000) in the balance sheet on December 31,2017 No adjustment are to be made for fair valuation Working note: Interest on bond = 108111 x 4% = 4324Related Questions
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