Homework Sourseplease show work thank you Online Corp decided to invest its
please show work, thank you!
Online Corp. decided to invest its excess cash in debt and equity securities. The following securities were purchased on January 2, 2017:
Bonds issued by the Jata Corp. The bonds have a face value of $100,000, a 10 year life, and a stated interest rate of 5%. Interest is paid annually on December 31st. The bonds were purchased at $108,111 to yield 4% and Online classifies the debt investment as Available for Sale.
8,000 shares of Micro Corp.’s common stock at $60 per share. The securities are accounted for using the fair value method.
200,000 shares of Quazno Corp. at $25 per share. The shares make up 40% of the outstanding shares for Quazno, so are accounted for using the equity method. During 2017, Quazno reported net income of $600,000.
Additional Information:
Fair values as of December 31, 2017: Jata bonds $106,000
Micro stock $65 per share
Quazno stock $31 per share
In addition to the interest paid on the Jata bonds, the following dividends were paid on the equities during 2017: Micro $.40 per share
Quazno $.30 per share
REQUIRED
1. Prepare all entries related to the securities for 2017, including purchase, dividends and/or interest and any necessary adjusting entries. (14 points)
2. Ignoring income taxes, compute the amount to be included in 2017 net income and in 2017 other comprehensive related to Online’s investments. (4 points)
3. Compute the amount at which Quazno would be carried in the December 31, 2017 balance sheet. (2 points)
Check Figures: Net Income $287,524; Comprehensive Income ($1,435)
Solution
(To record the change in fair value of Micro Corp.)
10 Unrealized loss on available for sale securities 2,111
Investment in bonds-available for sale 2,111
11 Investment in bonds-available for sale 676
Unrealized interest revenue 676
| 1. Journal Entries | ||||||||
| 1 | Investment in bond-available for sale | $108,111 | ||||||
| Cash | $108,111 | |||||||
| (To record purchase of bonds at premium) | ||||||||
| 2 | Investment in Long term Equity secutities | 480,000 | ||||||
| Cash | 480,000 | |||||||
| (To record purchase of shares of Micro corp. ) | ||||||||
| 3 | Investment in Long term Equity Securities | 5,000,000 | ||||||
| Cash | 5,000,000 | |||||||
| (To record purchase of shares of Quazno) | ||||||||
| 4 | Investment in Long Term Equity Securities | 240,000 | ||||||
| Investment Revenue | 240,000 | |||||||
| (To record income distribution of Quazno) | ||||||||
| ($600000 x 40%) | ||||||||
| 5 | Cash | 4,324 | ||||||
| Interest Revenue | 4,324 | |||||||
| (To record interest received on bond) | ||||||||
| 7 | Cash | 3,200 | ||||||
| Investment Revenue | 3,200 | |||||||
| (To record Dividend received from Micro Corp.) | ||||||||
| 8 | Cash | 60,000 | ||||||
| Investment in Long Term Equity Securities | 60,000 | |||||||
| (To record dividend received from Quazno) | ||||||||
| 9 | Investment in Long term Equity Securities | 40,000 | ||||||
| Unrealized gain on securities | 40,000 | |||||||
| (To record the change in fair value of Micro Corp.) 10 Unrealized loss on available for sale securities 2,111 Investment in bonds-available for sale 2,111 11 Investment in bonds-available for sale 676 Unrealized interest revenue 676 | ||||||||
| 2. Amount to be included in 2017 Net Income | ||||||||
| Investment Revenue | 240,000 | |||||||
| Interest Revenue | 4,324 | |||||||
| Investment Revenue | 3,200 | |||||||
| Unrealized gain on securities | 40,000 | |||||||
| Total | 287,524 | |||||||
| Other Comprehensive related to Online\'s Investment | ||||||||
| Unrealised loss on available for sale securities | (2,111) | ($106000-108111) | ||||||
| Unrealized interest revenue | 676 | (5000-4324) | ||||||
| Comprehensive Income | (1,435) | |||||||
| 3. Quazno would be carried at $5,240,000 ($5,000,000 + 240,000) in the balance sheet on December 31,2017 | ||||||||
| No adjustment are to be made for fair valuation | ||||||||
| Working note: | ||||||||
| Interest on bond = 108111 x 4% | ||||||||
| = 4324 |
