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ACC423 / ACC 423 / Week 3 Individual Wiley Plus Exercise

ACC423 / ACC 423 / Week 3 Individual Wiley Plus Exercise

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Published by Number1Tutor
Question 1
(Trading Securities Entries)
On December 21, 2010, Zurich Company provided you with the following information regarding its
trading securities.
December 31, 2010
Investments(Trading) Cost Fair Value
Unrealized
Gain (Loss)
Stargate Corp. stock $20,000 $19,000 $(1,000)
Carolina Co. stock 10,000 9,000 (1,000)
Vectorman Co. stock 20,000 20,600 600
Total Portfolio $50,000 $48,600 (1,400)
Previous securities fair value adjustment balance -0-
Securities fair value adjustment—Cr. $(1,400)
During 2011, Carolina Company stock was sold for $9,500. The fair value of the stock on December 31,
2011, was: Stargate Corp. stock-$19,300; Vectorman Co. stock-$20,500.
(a) Prepare the adjusting journal entry needed on December 31, 2010 Question 2
(Journal Entries for Fair Value and Equity Methods)
Presented below are two independent situations.
Prepare all necessary journal entries in 2010 for each situation.
Situation 1
Hatcher Cosmetics acquired 10% of the 200,000 shares of common stock of Ramirez Fashion at a total
cost of $14 per share on March 18, 2010. On June 30, Ramirez declared and paid a $75,000 cash
dividend. On December 31, Ramirez reported net income of $122,000 for the year. At December 31, the
market price of Ramirez Fashion was $15 per share. The securities are classified as available-for-sale
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal's 30,000
outstanding shares of common stock at a total cost of $9 per share on January 1, 2010. On June 15, Nadal
declared and paid a cash dividend of $36,000. On December 31, Nadal reported a net income of $85,000
for the year.
Question 3
(Available-for-Sale Investments)
Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained
debits for investment purchases, and no credits, with the following descriptions. Question 4
(Fair Value and Equity Methods)
Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building
construction. The company has long dominated the market, at one time achieving a 70% market
penetration. During prosperous years, the company's profits, coupled with a conservative dividend
policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of
investing idle cash in equity securities. In particular, Brooks has made periodic investments in the
company's principal supplier, Norton Industries. Although the firm currently owns 12% of the
outstanding common stock of Norton Industries, Brooks does not have significant influence over the
operations of Norton Industries.
Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to
prepare the 2010 year-end adjusting entries for the accounts that are valued by the “fair value” rule
for financial reporting purposes. Thomas has gathered the following information about Brooks'
pertinent accounts.
1. Brooks has trading securities related to Delaney Motors and Patrick Electric. During this
fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these
shares currently have a market value of $1,600,000. Brooks' investment in Patrick Electric
has not been profitable; the company acquired 50,000 shares of Patrick in April 2010 at $20
per share, a purchase that currently has a value of $720,000.
2. Prior to 2010, Brooks invested $22,500,000 in Norton Industries and has not changed its
holdings this year. This investment in Norton Industries was valued at $21,500,000 on
December 31, 2009. Brooks' 12% ownership of Norton Industries has a current market value
of $22,225,000
Question 1
(Trading Securities Entries)
On December 21, 2010, Zurich Company provided you with the following information regarding its
trading securities.
December 31, 2010
Investments(Trading) Cost Fair Value
Unrealized
Gain (Loss)
Stargate Corp. stock $20,000 $19,000 $(1,000)
Carolina Co. stock 10,000 9,000 (1,000)
Vectorman Co. stock 20,000 20,600 600
Total Portfolio $50,000 $48,600 (1,400)
Previous securities fair value adjustment balance -0-
Securities fair value adjustment—Cr. $(1,400)
During 2011, Carolina Company stock was sold for $9,500. The fair value of the stock on December 31,
2011, was: Stargate Corp. stock-$19,300; Vectorman Co. stock-$20,500.
(a) Prepare the adjusting journal entry needed on December 31, 2010 Question 2
(Journal Entries for Fair Value and Equity Methods)
Presented below are two independent situations.
Prepare all necessary journal entries in 2010 for each situation.
Situation 1
Hatcher Cosmetics acquired 10% of the 200,000 shares of common stock of Ramirez Fashion at a total
cost of $14 per share on March 18, 2010. On June 30, Ramirez declared and paid a $75,000 cash
dividend. On December 31, Ramirez reported net income of $122,000 for the year. At December 31, the
market price of Ramirez Fashion was $15 per share. The securities are classified as available-for-sale
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal's 30,000
outstanding shares of common stock at a total cost of $9 per share on January 1, 2010. On June 15, Nadal
declared and paid a cash dividend of $36,000. On December 31, Nadal reported a net income of $85,000
for the year.
Question 3
(Available-for-Sale Investments)
Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained
debits for investment purchases, and no credits, with the following descriptions. Question 4
(Fair Value and Equity Methods)
Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building
construction. The company has long dominated the market, at one time achieving a 70% market
penetration. During prosperous years, the company's profits, coupled with a conservative dividend
policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of
investing idle cash in equity securities. In particular, Brooks has made periodic investments in the
company's principal supplier, Norton Industries. Although the firm currently owns 12% of the
outstanding common stock of Norton Industries, Brooks does not have significant influence over the
operations of Norton Industries.
Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to
prepare the 2010 year-end adjusting entries for the accounts that are valued by the “fair value” rule
for financial reporting purposes. Thomas has gathered the following information about Brooks'
pertinent accounts.
1. Brooks has trading securities related to Delaney Motors and Patrick Electric. During this
fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these
shares currently have a market value of $1,600,000. Brooks' investment in Patrick Electric
has not been profitable; the company acquired 50,000 shares of Patrick in April 2010 at $20
per share, a purchase that currently has a value of $720,000.
2. Prior to 2010, Brooks invested $22,500,000 in Norton Industries and has not changed its
holdings this year. This investment in Norton Industries was valued at $21,500,000 on
December 31, 2009. Brooks' 12% ownership of Norton Industries has a current market value
of $22,225,000

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