1.Kruger Corporation has the following long-term investments: (1) Common stock o
ID: 2490048 • Letter: 1
Question
1.Kruger Corporation has the following long-term investments: (1) Common stock of Eidman Co. (10% ownership) held as available-for-sale securities, cost $112,800, fair value $121,470. (2) Common stock of Pickerill Inc. (30% ownership), cost $240,040, equity $301,830. Prepare the investments section of the balance sheet.
2.Flynn Company purchased 60 Rinehart Company 11%, 10-year, $1,200 bonds on January 1, 2014, for $72,000. The bonds pay interest semiannually on July 1 and January 1. On January 1, 2015, after receipt of interest, Flynn Company sold 36 of the bonds for $39,600.
Prepare the journal entries to record the transactions described above.
Explanation / Answer
Answer:1
The investments have to be shown in the Balance Sheet at 'cost price or market price, whichever is less'.
Since available for sale is more liquid, therefore, Eidman Co investment would be shown first.
Answer:2
Journal entries :
Date
General Journal
Debit
Credit
Jan 1, 2014
Debt investment Dr.
72000
To Cash
72000
July 1, 2014
Cash Dr.
3960
To interest revenue
3960
Dec. 31, 2014
Interest receivable Dr.
3960
To interest revenue
3960
Jan 1, 2015
Cash Dr.
3960
To interest receivable
(To record receipt of interest)
3960
Jan 1, 2015
Cash Dr.
39600
Loss on sale of debt investment Dr.
3600
To debt investment
(To record sale of bonds)
43200
Explanation:
Calculation of interest:
Interest = No. of bonds * Bond price * interest rate
Interest = 60 * $1200* (11%/2)
= 60*$1200*5.5%
= $3960
Note: Since interest is paid semiannually, therefore, we will take half of the annual interest rate.
Calculation of loss on sale of bonds:
Cost of bonds sold = (Total purchase price of bonds/Total bonds purchased) * No. of bonds sold
= ($72000/60)*36
= $1200*36
= $43200
Loss on sale of bonds = Cost of bonds sold - Cash received from sale of bonds
= $43200 - $39600
= $3600
Kruger Corporation Balance sheet (Investment Section) Assets Amount Common stock of Eidman Co. $ 1,12,800.00 Common stock of Pickerill Inc $ 2,40,040.00Related Questions
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