1756 CHAPTER 17 Investments Prepare Fairbanks” journal entries to record (a the purchase ofthe it~ yestment, (b) the dividends received, and (c) the fair value adjustment, BEI7.9 (LO2) Cleveland Company has a nonstrading equity invest- ment portfolio valued at $4,000. Its cost was $3,300. Prepare the jour nal entry at year-end, BEI7.10 (LO3)Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Ine. This investment enables Zoop to exert sig- nificant influence over Murphy. During the year, Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop's {journal entries related to this investment BEI7.11 (LO4) Hillsborough Co. has a held-for-collection invest- ment in the bonds of Schuyler Corp. with a carrying (and fer) value ‘of $70,000. Due to poor economic prospects for Schuyler, Hillsbor- ‘ough determined that it wll not be able to collect all contractual cash flows and the bonds have decreased in value to $60,000. It is deter- ‘mined that this isa permanent loss in value. Prepare the journal entry, iff any, to record the reduction in value, BE17.12 (LO4) Presented below are two inde, to held-for-collecion and selling debt investments SS ay Luel Case Amortized cost $40,000 Sio0009 Fair value 30,000 110,009 Expected credit losses 4.000 4.009 For each case, determine the amount of impairment loss, ifany, journal entry to record the impairment, neat BEI7.13 (Loa) Cameron Company has a portfolio of db ines mens that ft has managed as a trading investment. At Decembe 2019, Cameron had the following balances related to this porto. debt investments, £250,000; far value adjustment, £10,325 (op, Cameron management decides to change its business model forthe investments to a held-for-collection strategy. beginning in Janay 2020. Prepare the journal entry to transfer these investments tote held-for-cllection classification. 17.1 (LO2) (lavestment Classifications) For the following investments, identify whether they are: A. Debt investments—held-for-collection, 2. Debt investments—held-for-collection and selling, 3. Debt investments—teading. 4. Trading equity investments, 5. Non-tading equity investments, Each case is independent of the other. ‘8. A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon asthe value ineveases, which is expected next month, it will be sold », 10% of the oustanding shares of Farm-Co are purchased. The company is planning on evently 7 geting a total of 30% of its outstanding shares ‘& 10-year bonds were purchased this year. The hoods mature atthe first of next year, andthe company plans to sel the bonds if interest rates fall, 4. Bonds that will mature in 5 years are purchased. The company hasa strategy to hold them to collect imerest payments and principal ofthe bonds at maturity © bond that matures in 10 years was purchased, The company is investing money set aside for an ‘expansion project planned 10 years from now. £0 inary shares ina distributor are purchased te mect a regulatory requirement for doing business in the distributors region, The investment will be held indefinitely. 17.2 (LO2) (Debt Investments) On January 1, 2019, Jennings SA purchased st par 10% bonds having a maturity value of €300,000, They are dated January 1, 2019, and mature January 1, 2024 With interest receivable December 31 ofeach year. The bonds are held ta collect contractual cash fos Instructions a, Prepare the journal entry atthe date ofthe bond purchase. '. Prepare the journal entry to record the interest received for 2019. ©. Prepare the journal entry to record the interest received for 2020. E173 (LO3) (Debt Investments) On January 1, 2019, Roosevelt Company purchase bonds having a maturity value of $500,000 for $537,907.40. The bonds provide the bend ers with a 10% yield. They are dated January 1, 2019, and mature January 1. 2024 with i!h year. Roosevelt's business model is to hold t jved December 31 of eacl received hese bonds to collect contractual cash flows. ructions _ Prepare the journal entry at the date of the bond purchase. © Prepare a bond amortization schedule, : Prepare the journal entry to record the interest received and the amortization for 2019, 7 Prepare the journal entry to record the interest received and the amortization for 2020. EIT (Lot) (Debt Investments) Assume the same information has an active trading stratezy for these bonds. The fair value of the bs end is as follows. as in E17.3 except that Roosevelt onds at December 31 of each year- 2019 $934,200 2022 $517,000 2020 $515,000 2023 $500,000 2021 $513,000 Instructions a, Prepare the journal entry at the date of the bond purchase. b, Prepare the journal entries to record the ‘interest received and recognition of fair value for 2019, «: Prepare the journal entry to record the recognition of fait value for 2020, d. Discuss how the response to (c) will be different assuming Roosevelt has a strategy of held-for-collection and selling. EI7.5 (LO1) (Debt Investments) On January 1, 2019, Mor: rgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384. The interest ji Instructions a, Prepare a 3-year schedule of interest revenue and bond d b. Prepare the journal amortization, iscount amortization. (Round to nearest cent.) | entry for the interest receipt of December 31, 2020, and the discount E17.6(L01) (HFCS Debt Securities Entries and Financial ‘Statement Presentation) At December 31, 2019, the held. -for-collection and selling debt portfolio for Steffi Graf SA is as follows, Amortized Security Cost Pair Value Unrealized Gain (Loss) a €17,500 €15,000 (€2,500) B 12,500 14,000 1,500 c 23,000 25,500 2,500 Total €53,000 €54,500, 1,500 Previous fair value adjustment balance —Dr. 400 Fair vatue adjustment—Dr, 1,100 Dn January 20, 2020, Stetti Graf SA sold security A for €15,100. The sale proceeds are net of brokerage fees, & Prepare the adjusting entey at December 31, 2019, to report the portfolio at fair value. b. Show the statement of financial pos ‘ion 31, 2019. (snore notes Presentation.) Presentation of the investment-related accounts at December & Prepace the journal entry for the 2020 sale of security A, E17.7 (Loa) (Fair Value Option) Refer to the information in E17.3 and assume that Roosevelt elect- d the fair value option for this held-for-collection investment.Investments 17.1 (LO1) (Debt Investments) Presented below is an amortization schedule related to g, Company's 5-year, $100,000 bond with a 7% interest rate and a 5% yield, Purchased on Doo, ret Dec 2016, for $108,660. ember 3), Cash Interest Bond Premium Carrying Amount Date Received Revenue Amortization of Bonds 123116 $108,660 1231/17 $7,000 $5,433 $1,567 107,093 12/31/18 7,000 5,354 1,646 105,447 1231/19 7,000 5,272 1,728 103,719 12/31/20 7,000 5,186 1,814 101,905 12311 7,000 5,095 1,905 100,000 ‘The following schedule presents a comparison of the amortized cost and fair value of the bonds at ‘yearend, 12/31/17 12B1N8 12/31/19 1231720 12/3120 Amortized cost $107,093 $105,447 $103,719 $101,905 $100,000 Fair value 106,500 107,500 105,650 103,000 100,000 Instructions a. Prepare the journal entry to record the purchase of these bonds on December 31, 2016, assuming the bonds are classified as held-for-collection investments. b. Prepare the journal entry(ies) related to the held-for-collection bonds for 2017. © Prepare the journal entry(ies) related to the held-for-collection bonds for 2019, 4. Prepare the journal entry(ies) to record the Purchase of these bonds, assuming they are classified as trading. €. Prepare the journal entry(ies) related to the bonds for and (2) held-for-collection and selling (HFCS), f. Prepare the journal entry(ies) related to the trading bonds for 2019, 2017, assuming they are classified: (1) trading, PI7.2 (LOL) (Debt Investments, Fair Value Option) On January 1, 2019, Novotna AG purchased £400,000, 8% bonds of Aguirre Co. for €369,114. The bonds were purchased to yield 10% interes: Intexat is payable semiannually on July {and January 1.’The bonds mature on January 1.2024, Novotna Company Plans to hold the bonds to collect contractual cash flows. On January 1, 2021, Novotna Company sold the bonds for €370.726 after receiving interest to meet its liqui Instructions ‘a. Prepare the journal entry to record the purchase of bond: Prepare the amortization schedule for the bonds. cP ls on January 1. ‘epare the journal entries to record the semiannual interest on July 1, 2019, and December 31, 2019. 4. Prepare the journal entry to record the sale of the bonds on January 1, 2021, ¢. Assume that Novotna elected the fair value ception for this investment. If the fair value of Aguirre bonds is €368.000 on December 31, 2019, Prepare the necessary adjusting entry. ag (40432) (Debt and Equity Investments) Cardinal Paz Corp. carries an account in it general ledger called Investments, which contained debits for investment purchases. and no credits, with the follow- ing descriptions. Feb. 1.2019 Sharapova Company ordinary shares, $100 ar, 200 shares S 37400 April I Government bonds, 11%, due April 1, 2025, interest payable Anril | and October 1, 110 bonds of $1,000 par each 110,000 July 1 MeGrath Company 12% bonds, par $50,000, dated Mach 1, 2019 burchased at 104, plus accrued interest payable annually on March 1, due March 1, 2039 _ * 54,000 Instructions (Round all computations to the nearest dollar) 1 Prepare entries necessary to classify the amounts into Proper accounts actively manage these investments, assuming that Paz plans t0