Question One: On January 4, 2014, Penman Company purchased 124,000 shares of Hi
ID: 2472411 • Letter: Q
Question
Question One: On January 4, 2014, Penman Company purchased 124,000 shares of Hi Energy Company directly from one of the founders for a price of $44 per share. Hi Energy has 400,000 shares outstanding, including the Penman shares. On July 2, 2014, Hi Energy paid $440,000 in total dividends to its shareholders. On December 31, 2014, Hi Energy reported a net income of $800,000 for the year. Penman uses the equity method in accounting for its investment in Hi Energy.
a. Provide the Penman Company journal entries for the transactions involving its investment in Hi Energy Company during 2014
b. Determine the December 31, 2014, balance of the Investment in Hi Energy Company Stock account.
Question 2:
Fair Value Journal Entries, Trading Investments
B. Assume the market prices of the portfolio were the same on December 31, 2015, as they were on December 31, 2014.
What would be the journal entry to adjust the portfolio to fair value?
==================
Question 3:
Provide the journal entry to adjust the available-for-sale security portfolio to fair value on December 31, 2014.
Required:
1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.
2. Prepare the investment-related current asset balance sheet presentation for Scofield Financial Co. on December 31, 2015.
Question Five:
Stock Investment Transactions, Equity Method and Available-for-Sale Securities
Required:
1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
2. Prepare the investment-related asset and stockholders' equity balance sheet presentation for Daffitar Inc. on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $465,000.
Question Six:
Note 2. The investment in Jolly Roger Co. stock is an equity method investment representing 30% of the outstanding shares of Jolly Roger Co.
The comparative unclassified balance sheets for December 31, 2015 and 2014 are provided below. Selected balances are missing. Determine the missing amounts. Do not round interim calculations. Round final answers to nearest dollar.
O'Brien Industries Inc.
Balance Sheet
December 31, 2015 and 2014
Dec. 31, 2015
Dec. 31, 2014
Cash
$233,000
$220,000
Accounts Receivable (Net)
136,530
138,000
Available-for-Sale Investments (at Cost)-Note 1
103,770
Less Valuation Allowance for Available-for-Sale Investments
2,500
Available-for-Sale Investments (Fair Value)
$
$101,270
Interest Receivable
$
Investment in Jolly Roger Co. Stock-Note 2
$ 77,000
Office Equipment (Net)
115,000
130,000
Total Assets
$
$666,270
Accounts Payable
$ 69,400
$ 60,000
Common Stock
70,000
70,000
Excess of Issue Price Over Par
225,000
225,000
Retained Earnings
308,770
Unrealized Gain (Loss) on Available-for-Sale Investments
2,500
Total Liabilities and Stockholders' Equity
$
$666,270
Six:
B. Assume the market prices of the portfolio were the same on December 31, 2015, as they were on December 31, 2014.
What would be the journal entry to adjust the portfolio to fair value?
==================
Question 3:
Storm, Inc. purchased the following available-for-sale securities during 2014, its first year of operations:
The market price per share for the available-for-sale security portfolio on December 31, 2014, was as follows:
Provide the journal entry to adjust the available-for-sale security portfolio to fair value on December 31, 2014.
Question 4:Scofield Financial Co. is a regional insurance company that began operations on January 1, 2014. The following transactions relate to trading securities acquired by Scofield Financial Co., which has a fiscal year ending on December 31:
Required:
1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.
2. Prepare the investment-related current asset balance sheet presentation for Scofield Financial Co. on December 31, 2015.
Scofield Financial Co.Balance Sheet (selected Current Asset items)
December 31, 2015 Current Assets:
Question Five:
Stock Investment Transactions, Equity Method and Available-for-Sale Securities
Daffitar Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2014. The following transactions relate to securities acquired by Daffitar Inc., which has a fiscal year ending on December 31:
Required:
1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
2. Prepare the investment-related asset and stockholders' equity balance sheet presentation for Daffitar Inc. on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $465,000.
Question Six:
O'Brien Industries Inc. is a book publisher. The following selected investment transactions occurred during 2015:
Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, 2014, are as follows:
Note 2. The investment in Jolly Roger Co. stock is an equity method investment representing 30% of the outstanding shares of Jolly Roger Co.
The comparative unclassified balance sheets for December 31, 2015 and 2014 are provided below. Selected balances are missing. Determine the missing amounts. Do not round interim calculations. Round final answers to nearest dollar.
O'Brien Industries Inc.
Balance Sheet
December 31, 2015 and 2014
Dec. 31, 2015
Dec. 31, 2014
Cash
$233,000
$220,000
Accounts Receivable (Net)
136,530
138,000
Available-for-Sale Investments (at Cost)-Note 1
103,770
Less Valuation Allowance for Available-for-Sale Investments
2,500
Available-for-Sale Investments (Fair Value)
$
$101,270
Interest Receivable
$
Investment in Jolly Roger Co. Stock-Note 2
$ 77,000
Office Equipment (Net)
115,000
130,000
Total Assets
$
$666,270
Accounts Payable
$ 69,400
$ 60,000
Common Stock
70,000
70,000
Excess of Issue Price Over Par
225,000
225,000
Retained Earnings
308,770
Unrealized Gain (Loss) on Available-for-Sale Investments
2,500
Total Liabilities and Stockholders' Equity
$
$666,270
Six:
Explanation / Answer
a. Journal Entries in the books of Penman Company
Date
Account head
Debit
Credit
04-Jan-14
Investments in Hi Energy Company
5,456,000
Cash
5,456,000
(Being invested in equity shares of 124,000 share at $44 per share of Hi Energy Company)
02-Jul-14
Cash
136,400
Dividend from Hi Energy Company
136,400
(Being dividend received from Investments in Hi Energy Company)
31-Dec-14
Investments in Hi Energy Company
248,000
Equity income
248,000
(Being income earned by Investments in Hi Energy company)
Question 1:
Note:
The equity method of accounting is used to account for an organization’s investment in another entity (the investee). This method is only used when the investor has significant influence over the investee. Under this method, the investor recognizes its share of the profits and losses of the investee in the periods when these profits and losses are also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.
Profits for the year = $800,000
% of share in Hi Energy Company = 31% (124,000 / 400,000)
% of share in profits = $248,000 ($800,000 * 31%)
b. Balance in Investment Account:
Opening Balance in Investment (Purchased) 124,000 share @44 = $5,456,000
Earnings from investments = $248,000
Total Amount in Investment Account = $5,704,000
Question 2:
Journal Entries in Last Unguaranteed Financial Inc.
Date
Account Head
Debit
Credit
2014
Investments in Arden Enterprises Inc.
150,000
Investments In French Board Industries Inc.
66,000
Investments in Pisgah Construction Inc.
104,000
Cash
320,000
(Being invested in different trading security portfolio)
31-Dec-14
Investments in Arden Enterprises Inc.
20,000
Unrealized holding gain account
20,000
(Being investment are marked to market i.e. booked unrealized gain of $4 for 5000 shares)
Investments in Arden Enterprises Inc.
5,500
Unrealized holding gain account
5,500
(Being investment are marked to market i.e. booked unrealized gain of $2 for 2750 shares)
Unrealized holding Loss account
8,000
Investments In French Board Industries Inc.
8,000
(Being investment are marked to market i.e. booked unrealized loss of $5 for 1600 shares)
31-Dec-15
Investments in Arden Enterprises Inc.
20,000
Unrealized holding gain account
20,000
(Being investment are marked to market i.e. booked unrealized gain of $4 for 5000 shares)
Investments in Arden Enterprises Inc.
5,500
Unrealized holding gain account
5,500
(Being investment are marked to market i.e. booked unrealized gain of $2 for 2750 shares)
Unrealized holding Loss account
8,000
Investments In French Board Industries Inc.
8,000
(Being investment are marked to market i.e. booked unrealized loss of $5 for 1600 shares)
a. Journal Entries in the books of Penman Company
Date
Account head
Debit
Credit
04-Jan-14
Investments in Hi Energy Company
5,456,000
Cash
5,456,000
(Being invested in equity shares of 124,000 share at $44 per share of Hi Energy Company)
02-Jul-14
Cash
136,400
Dividend from Hi Energy Company
136,400
(Being dividend received from Investments in Hi Energy Company)
31-Dec-14
Investments in Hi Energy Company
248,000
Equity income
248,000
(Being income earned by Investments in Hi Energy company)
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