Real-Time Corporation Real-Time Corporation is a diversified company that uses a
ID: 2457210 • Letter: R
Question
Real-Time Corporation
Real-Time Corporation is a diversified company that uses an investment portfolio to manage its liquidity and to enhance earnings. Their fiscal year ends on December 31. On October 1, 2010, its investment portfolio consists of the following securities:
Date
Purchased
Issuer
Description
Cost
Market Value
09/30/2010
07/01/10
Maslow Company
1,000,000 shares of preferred
stock; will be held indefinitely
$20,000,000
$19,400,000
08/02/10
Cardinal
Publishing
250,000 shares of common stock;
will be held unless needed for liquidity
$ 3,750,000
$ 4,500,000
09/30/10
Bardco Furniture
$10,000,000 face value, 8 percent
bonds, maturing April 15, 2019; interest paid semi-annually on October 15 and April 15; may be sold if needed for liquidity purposes
$10,000,000
$10,000,000
Real-Time Corporation made all of the appropriate adjusting entries on September 30, 2010. During the last quarter of 2010 and the first few days of 2011, Real-Time Corporation had the following investment transactions:
2010
Oct 1 Purchased U.S. Treasury Bonds for $2,300,000; the bonds mature in 2012 and bear interest at 5 percent, paid semiannually on September 30 and March 30. Real-Time Corporation anticipates that interest rate changes will force bond prices up in the next month and will sell these bonds at that time.
Oct 15 Received semiannual interest on Bardco Bonds.
Oct 31 Sold the U.S. Treasury Bonds for $2,400,000 plus accrued interest.
Nov 1 Purchased $30,000,000 of Zardinia Corporation’s bonds to yield 9 percent and paid
$31,951,190. The bonds pay interest semiannually on April 30 and October 31 at the stated rate of 10 percent. Real-Time Corporation plans to hold these bonds to their maturity date, which is October 31, 2020.
Nov 30 Sold the Bardco Bonds for $9,000,000 plus accrued interest because rising interest rates are expected to cause the value of the bonds to continue to decline.
Dec 1 Purchased 500,000 Nazdak Corporation common stock, $1 par, for $18 per share. This investment was made in anticipation of an increase in the price of the company’s stock, at which point it will be sold.
Dec 15 Received $.50 per share in dividends on the Maslow Company stock.
Dec 31 Created any schedules needed to record adjusting entries for the investment portfolios, and prepared the adjusting entries. Market values for the investments on December 31, 2010, were as follows:
Maslow Company $20,700,000
Zardinia Corporation $29,700,000
Nazdak Corporation $8,500,000
Cardinal Publishing $4,100,000
2011
Jan 2 Sold $10,000,000 of the Zardinia Corporation bonds for face value.
Jan 5 Sold all of the Nazdak shares at a price of $20 per share.
Jan 10 Sold all of the Cardinal Publishing shares for $17.50 per share.
Date
Purchased
Issuer
Description
Cost
Market Value
09/30/2010
07/01/10
Maslow Company
1,000,000 shares of preferred
stock; will be held indefinitely
$20,000,000
$19,400,000
08/02/10
Cardinal
Publishing
250,000 shares of common stock;
will be held unless needed for liquidity
$ 3,750,000
$ 4,500,000
09/30/10
Bardco Furniture
$10,000,000 face value, 8 percent
bonds, maturing April 15, 2019; interest paid semi-annually on October 15 and April 15; may be sold if needed for liquidity purposes
$10,000,000
$10,000,000
Explanation / Answer
Date Accounts and explanations Debit ($) Credit ($) Oct. 1, 2010 Investment - 5% U.S Treasury bonds 2,300,000 Cash 2,300,000 (To record the purchase of 5% U.S treasury bonds for cash) Oct. 15, 2010 Cash 400,000 Interest revenue ($10,000,000*8/100*6/12 months) 400,000 (To record the receipt of semi annual interest by cash) Oct. 31, 2010 Cash 2,309,583 Investment - 5% U.S Treasury bonds 2,300,000 Interest revenue ($2,300,000*5/100*1/12 months) 9,583 (To record the sale of US treasury bonds along with one month interest) Nov. 1, 2010 Investment - 10% Bonds - Zardinia 30,000,000 Premium on 10% Bonds 1,951,190 Cash 31,951,190 (To record the pourchase of bonds with premium) Nov. 30, 2010 Cash 9,100,000 Loss on sale of 8% Bonds - Bardco ($10,000,000 - $9,000,000) 1,000,000 Investment - 8% Bonds - Bardco 10,000,000 Interest revenue ($10,000,000*8/100*1.5/12 months) 100,000 (To record the sale of bonds along with one and half month's interest at loss) Dec. 1, 2010 Investment - Nazdak common stock at par value of $1 (500,000 shares * $18 each) 9,000,000 Cash 9,000,000 (To record the purchase of 500,000 shares at a price of $18 each) Dec. 15, 2010 Cash 500,000 Dividends (1,000,000 shares * $0.50 per share) 500,000 (To record the receipt of dividends on Maslow stock) Dec. 31, 2010 Investment - Maslow ($20,700,000 - $20,000,000) 700,000 Gain on investment - Maslow 700,000 (To record the realization of gain on investment) Dec. 31, 2010 Loss on 10% Bonds ($30,000,000 - $29,700,000) 300,000 Investment - 10% Bonds - Zardinia 300,000 (To record the realization of loss on investment) Dec. 31, 2010 Loss on Common stock ($9,000,000 - $8,500,000) 500,000 Investment - Nazdak common stock 500,000 (To record the realization of loss on investment) Dec. 31, 2010 Investment - Cardinal ($4,100,000 - $3,750,000) 350,000 Gain on investment - Common stock 350,000 (To record the realization of gain on investment) Jan. 2, 2011 Cash 10,000,000 Investment - 10% Bonds - Zardinia 10,000,000 (To record the sale of 10% bonds of Zardinia at face value) Jan. 5, 2011 Cash (500,000 shares * $20 per share) 10,000,000 Investment - Nazdak common stock ($9,000,000 - $500,000) 8,500,000 Gain on sale of investment ($10,000,000 - $8,500,000) 1,500,000 (To record the sale of 10% bonds of Zardinia at face value) Jan. 10, 2011 Cash (250,000 shares * $17.50 per share) 4,375,000 Investment - Nazdak common stock ($3,750,000 + $350,000) 4,100,000 Gain on sale of investment ($4,375,000,000 - $4,100,000) 275,000 (To record the sale of 10% bonds of Zardinia at face value)
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