(i) On January 4, Year 1, Barber Company purchased 7,500 shares of Convell Compa
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Question
(i) On January 4, Year 1, Barber Company purchased 7,500 shares of Convell Company for $90,000 plus a broker's fee of $2,000. Convell Company has a total of 37,500 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.75 per share, and its net income was $87,000 and $82,000 for Year 1 and Year 2, respectively. The January 12, Year 3, entry to record Barber's sale of 4,500 shares of Convell Company stock, which represents 60% of Barber's total investment, for $60,750 cash should be:
Multiple Choice
Debit Cash $60,750; credit Gain on Sale of Investment $5,550; credit Long-Term Investments $55,200.
Debit Cash $60,750; debit Loss on Sale of Investment $7,980; credit Long-Term Investments $68,730.
Debit Cash $60,750; credit Gain on Sale of Investment $11,250; credit Long-Term Investments $49,500.
Debit Cash $60,750; debit Loss on Sale of Investment $11,250; credit Long-Term Investments $72,000.
Debit Cash $60,750; debit Loss on Sale of Investment $31,250; credit Long-Term Investments $92,000.
(ii)
Barnes Company purchased $62,000 of 11.0% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?
Multiple Choice
debit Unrealized Gain-Equity, $3,410; credit Cash, $3,410.
debit Cash, $6,820; credit Long-Term Investments—HTM, $6,820.
debit Cash, $3,410; credit Interest Revenue, $3,410.
debt Cash, $3,410; credit Long-Term Investments—HTM, $3,410.
debit Cash, $6,820; credit Unrealized Gain-Equity, $6,820.
(iii)
On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 3,800,000 yen. The exchange rate was $0.00860 on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00866. Kagome paid in full on January 12, when the exchange rate was $0.00884. On January 12, Higgins should prepare the following journal entry:
Multiple Choice
Debit Cash $33,592; credit Accounts Receivable-Kagome $32,680; credit Foreign Exchange Gain $912.
Debit Cash $32,680; debit Foreign Exchange Loss $912; credit Accounts Receivable-Kagome $33,592.
Debit Cash $32,908; credit Accounts Receivable-Kagome $32,680; credit Foreign Exchange Gain $228.
Debit Cash $32,680; debit Foreign Exchange Loss $228; credit Accounts Receivable-Kagome $32,908.
Debit Cash $33,592; credit Accounts Receivable-Kagome $32,908; credit Foreign Exchange Gain $684.
Explanation / Answer
(iii) Cash a/c Dr. (3800000*0.00884)33592
To Accounts receivable Cr.(3800000*0.00866) 32908
To Foreign exchange gain Cr.(33592-32908) 684
Note Trade recivables being a monetory item,will be represented in balance sheet at closing exchnage rate at 0.00866.
(ii)
Cash a/c Dr.(62000*11%*6/12) 3410
To Interest Revenue 3410
Note:It is not an unrealised interest Because interst is paid hence realised)
(iii)
Cash A/c Dr. 60750
To Long term investments(90000+2000)*60% 55200
To Gain on sale of investments 5550
Note
Brokage cost is incurred to acquire investments and hence it is treated as cost of investments
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